The Lasting Financial Impact of a Layoff

Losing a job you wanted to keep is never a good thing. But for those who lost their jobs during the Great Recession, the long-term consequences will probably be very significant.

According to an economic analysis by the Hamilton Project, a research group in Washington, those laid off from long-term jobs between 2007 and 2009 are likely to lose a total of $774 billion in earnings over the next 25 years, even if they get new jobs.

The analysis of Census Bureau data, conducted by Michael Greenstone and Adam Looney, looks at how the seven million workers who lost jobs they had held for three years or more at the time of the layoff fared in the two years following the job loss.

The graph below shows all workers who lost their job for economic reasons during the worst seven months of the recession and how they have fared since the job loss.

Monthly earnings (excluding severance) of full-time workers who lost jobs between October 2008 and April 2009 for economic reasons and who had at least $500 in monthly earnings in August 2008. (Source: Census Bureau Survey of Income and Program Participation, 2008-10)The Hamilton ProjectMonthly earnings (excluding severance) of full-time workers who lost jobs between October 2008 and April 2009 for economic reasons and who had at least $500 in monthly earnings in August 2008. (Source: Census Bureau Survey of Income and Program Participation, 2008-10)

Including those who have not yet found work as well as those who did find new jobs, the average earnings of the group were barely half what they were before the workers lost their jobs, falling from $43,700 before to $23,000 two years later. The income numbers do not include unemployment benefits.

Focusing just on those who were able to find new jobs, the study found they were earning an average of 17 percent less than they earned in their previous posts.

Mr. Greenstone and Mr. Looney based their calculations of future losses on research conducted by Steven J. Davis, an economist at the Booth School of Business at the University of Chicago, and Till von Wachter, an economist at Columbia University, which found that workers who lose their jobs during recessions lose an average of $112,100 over their careers.

Mr. Greenstone, an economist at the Massachusetts Institute of Technology, said many of the displaced workers either have no college degrees or have skills that are rapidly being outdated, and therefore need education to get back to work in jobs that will match their prior incomes. The sobering data, he said, “highlights the importance of trying to identify training programs that can help this set of workers so they don’t lose that money.”

Correction: November 4, 2011
An earlier version of this post misstated the period examined in arriving at an estimate that laid-off workers are likely to lose a total of $774 billion in earnings over the next 25 years. It involves those laid off from 2007 to 2009, not between October 2008 and April 2009.
http://economix.blogs.nytimes.com/2011/11/04/the-lasting-financial-impact-of-a-layoff/

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