Executive summary

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Between October 2008 and October 2009, the Canadian workforce lost roughly 500,000 paid jobs. As a result, interest in the outcomes of displaced workers has been renewed. While there are several conclusive studies on the earnings consequences of job loss, less is known about the factors which help mediate earnings losses. The current study is devoted to investigating one of these potential factors: training in a post-secondary institution.

The literature on the impact of training on earnings following job loss has generally concluded that training does not raise earnings. There are at least two possible reasons for this conclusion. First, the studies usually assess earnings over a short follow-up period, and may fail to observe longer-term benefits of training. Second, the studies focus on short-term training provided by the US government (outside the formal school setting), which are usually targeted at "disadvantaged" adults, particularly those with low skills and in long spells of unemployment. However, studies that use a different approach (Jacobson, LaLonde, and Sullivan 2005a and 2005b) estimate substantial returns to one year of college, and show that it takes time for the benefits of training to be realized.

This paper provides the first large-scale, long-term evidence on the utilization and effectiveness of retraining for displaced workers in Canada. The study uses the Longitudinal Worker File (LWF)—an administrative database representing 10% of Canadian workers that allows displaced workers and attendance in post-secondary education to be identified. The LWF allows workers to be followed longitudinally from five years preceding to nine years following job displacement, thereby permitting the analysis of the earnings consequences of training following displacement, as well as the relationship between job displacement and post-secondary training.

The study results indicate that, over the period spanning five years preceding and nine years following job loss, workers who attended post-secondary education shortly following displacement (in the next calendar year) saw their earnings increase by almost $7,000 more than displaced workers who did not. Significant benefits are found by sex, marital status, union coverage, and age, with the exception of men aged 35 to 44 years. However, despite the apparent benefits of education, job displacement is found to be associated with only a modest increase in post-secondary education attendance for all groups examined (about a 1 percentage point increase on a base of roughly 10%).

Overall, the study points to potentially substantial benefits to education for displaced workers. The key issue is whether one can interpret the reported earnings differences as the causal impact of education, or whether the different earnings paths of the treatment and control groups result from non-random selection into post-secondary education. Further analysis should allow for worker-specific trends in earnings, because workers who choose training after displacement may have a different pre-displacement pattern of earnings growth.