Earnings and Welfare after Downsizing: Central Bank Employees in Ecuador

This article measures the earnings and welfare losses experiencedby displaced employees of the Central Bank of Ecuador. It linksthese losses to individual characteristics such as gender, education,seniority, and salary in the public sector. Data are from asurvey of displaced employees that included subjective evaluationsof well-being in addition to information on activity and earnings.The welfare losses of separated employees are not highly correlatedwith their earnings losses, partly because some of them (especiallywomen) withdrew from the labor force after separation. Earningsand welfare losses also vary depending on the nature of displacement,which was voluntary for roughly half the employees and involuntaryfor the rest. Overall, the losses were larger for employeeswith less education and more seniority, but not necessarilylarger for employees with higher salaries. However, compensationfor displacement was based on a rule of thumb that involvedonly salary and seniority and was applied across-the-board.For those employees who left voluntarily, the resulting compensationpackage was, on average, about 20 percent higher than the welfareloss. The article derives the implications of these findingsfor the design of assistance programs for displaced workersand, more specifically, for the tailoring of compensation packagesto their individual characteristics.