How losing your job affects your long-term earning potential

[yllus]

Via Ezra Klein comes a graph from an International Monetary Fund discussion paper illustrating the effect of long-term unemployment on the average male’s overall earning potential:

From the IMF paper itself, The Challenges of Growth, Employment and Social Cohesion:

Loss of earnings: There is empirical evidence that layoffs are associated with substantial loss of earnings both over the short and long run. That is, even when workers are re-employed shortly after displacement, they suffer a decline in wages compared to the pre-displacement job and compared to similar workers that were not displaced.

The decline in earnings is on average observed for job losers in any period, but is most pronounced for job losers during a recession (see Farber, 2005). Studies for the US show that these earnings losses persist even in the long run: 15-20 years after a job loss in a recession, the earnings loss amounts on average to 20% (see e.g. Jacobson et al., 1993; von Wachter et al., 2009).

 

[BoberFett]

That's actually a very interesting topic, but it's going to take a little while to get through almost 100 pages.

Have you read it in its entirety? Do they get into the why?

 

[yllus]

That's actually a very interesting topic, but it's going to take a little while to get through almost 100 pages.

Have you read it in its entirety? Do they get into the why?

I've only read 5 or 6 pages. It doesn't go into the why's (the cited paper might) but it does discuss the options of increased use of "temporary contracts" in some nations where unemployment remains stubbornly high due to the inability of employers to fire workers once they're taking on full-time. That's not an issue we suffer from here in North America, though.

Ezra Klein offers something interesting for us, though - maybe implement a job-sharing program like Germany has, keeping the skills of two people reasonably sharp instead of fully employing one and leaving the other on unemployment. I think politicians here would have trouble getting support for a policy as socialist as that, though.

 

[jiggahertz]

why do salaries trend downwards in the years before loosing a job? Is this comparable to their peers?

 

[BoberFett]

I've only read 5 or 6 pages. It doesn't go into the why's (the cited paper might) but it does discuss the options of increased use of "temporary contracts" in some nations where unemployment remains stubbornly high due to the inability of employers to fire workers once they're taking on full-time. That's not an issue we suffer from here in North America, though.

Ezra Klein offers something interesting for us, though - maybe implement a job-sharing program like Germany has, keeping the skills of two people reasonably sharp instead of fully employing one and leaving the other on unemployment. I think politicians here would have trouble getting support for a policy as socialist as that, though.

I will read it, but without the reason for the decrease it may be useless. The decrease could just easily be simply a market correction of wages after a hot job market. During the dotcom bust, a lot of $200K/yr internet "wizkids" saw quite a drastic fall in their potential future income after companies realized that there was more to technology than hacking together an ugly web page. Hopefully this paper is more than just a plea for government funded busy work.