By Sara Murray of the Wall Street Journal
Workers who lose jobs in a recession suffer nearly twice the hit to future earnings compared to those who are displaced in more prosperous times, a new study shows.
Employees who held their jobs for three or more years and were let go in a mass layoff saw the value of their future earnings decline by 11% in an average year compared to those who kept their jobs, according to a paper released Thursday at the Brookings Institution by Columbia University’s Till von Wachter and the University of Chicago’s Steven Davis. Similar workers who were let go in a mass layoff during a recession saw the value of their future earnings drop nearly twice as much, 19%.
The paper notes that “workers who have experienced job displacements events since 2008 are likely to experience unusually severe and persistent earnings losses.”
The researchers tracked workers over time using Social Security records, covering 31% to 36% of all workers covered between 1980 and 2003. They focused on workers 50 years old and younger. When firms with 50 or more employees experienced a lasting drop in employment of at least 30% in two years, it was counted as a mass layoff.
When a worker was laid off, his earnings dropped steeply at the time of the layoff and eventually experienced a kind of recovery. But “The earnings losses do not completely fade even after 20 years,” the paper states. That’s true even when the economy is doing well. When the economy is performing poorly, the initial earnings loss is steeper.
Workers who were laid off in recessions experienced, on average, $112,095 in income losses — three years of pre-layoff earnings. Those laid off in expansionary times experienced a $65,424 loss.
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