The Stash

The Long-term Costs Of Losing A Job (hint: They're High)

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For good reasons, the current downturn is most often compared with the Great Depression, but the magnitude of job losses and lost output will probably turn out to resemble that of the double-dip downturn in the early 1980's.

Back then, a combination of inflation-fighting high interest rates and a structural shift in the country's manufacturing base sent the unemployment rate to 10.8 percent by November 1982, or about two points above the expected peak for the current recession (though some think 10 percent and above is not out of the question).

A relevant question to ask then, is what happened to those workers who lost their jobs during such a bad economy?

While there've been a number of studies on the short-term effects of job losses, there's been surpisingly little work on what happens over the long-run. And new preliminary findings from Till von Wachter of Columbia University, Jae Song of the Social Security Administration, and Joyce Manchester of the Congressional Budget Office do not augur well for this generation's unemployed. (older version)

Using data on workers who lost stable jobs through mass layoffs during the early 80's recession, the researchers found that earnings declined by up to 33 percent over the first five years compared to those who didn't lose their jobs. While some of that ground was eventually recovered, even after 20 years, job losers still earned 20 percent less on average. So far the researchers have only looked at male job losers, future results will break down wages by age, gender, industry, and a host of other characteristics.

Some possible goods news for us is that the rise of women will mitigate the wage losses for the current crop of unemployed. Also, the dislocation in the Rust Belt in the 1980’s was arguably more gut-wrenching than what’s happening to Detroit today. But to be pessimistic again, those workers who had the best shot of getting new skills experienced similar long-term hits to earnings as those who were further along in their careers. That likely means losing a job during a big downturn leaves a big permanent hit on the average person’s income.

So, if as a country we want to maintain a certain level of income parity, a safety net program for job losers like unemployment insurance has got to be strengthened.

-- Zubin Jelveh

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