Workers' outside options play a central role in determining the transitional costs of labor demand shocks. Using comprehensive administrative data, we examine the worker-level effects of the decline of coal - a regionally concentrated labor demand shock that reduced coal sector employment by more than 50 percent between 2011 and 2021. We show that coal workers experienced large and persistent earnings losses compared to similar workers with less or no connection to coal. Unlike worker-level analyses of labor demand shocks in more spatially diffuse industries, we find that non-employment is an important margin of adjustment. When employed, coal workers earn substantially lower wages than prior to coal's decline. Sectoral or regional mobility does little to mitigate these losses, while SSDI receipt increases substantially. Our findings suggest that transitional costs are higher in geographically concentrated industries when skills do not easily transfer across sectors.

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7 November 2024     Paper Number CEPDP2049

Download PDF - Transitional costs and the decline in coal: worker-level evidence

This CEP discussion paper is published under the centre's Labour programme.