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Wednesday, April 04, 2012

"Recessions and the Cost of Job Loss"

From the NBER Digest:

Recessions and the Cost of Job Loss, NBER: ...Using Social Security records for U.S. workers covering more than 30 years (1974-2005), researchers Steven J. Davis and Till von Wachter explore the cumulative earnings losses associated with what they call "job displacement." They are particularly interested in the role of labor market conditions at the time of job displacement in determining the magnitude of these losses.
In "Recessions and the Cost of Job Loss" (NBER Working Paper No. 17638 [open link]), they find that for men under the age of 50 with three or more years of job tenure, job loss reduces the present value of earnings by an estimated $77,557 (2000 dollars). This amount is estimated over a 20-year period using a 5 percent annual discount rate. The estimated losses are even larger for men with more job tenure, but are smaller for women.
The researchers further find that earnings losses rise steeply with the unemployment rate at the time of displacement. If the unemployment rate at the time of displacement is less than 6 percent, then the average earnings loss equals 1.4 years of pre-displacement earnings. If the unemployment rate is above 8 percent, the average earnings loss equals 2.8 years of pre-displacement earnings. ...

Or, to put it another way, "For high-tenure workers who experience job displacement in a recession, the losses amount to about three years of earnings at pre-displacement levels and 19% of the present value earnings of otherwise similar workers who retain jobs."

The longer that the unemployment rate stays high, the larger the permanent losses -- losses that fall mostly on individuals who have done nothing to deserve such a fate except choose the wrong occupation, be born at the wrong time and enter the workforce during a recession, and so on. And there are societal costs as well that we all pay in one way or the other.

To say what ought to be obvious, but apparently isn't, we should be doing more than we are to help with job creation.

    Posted by on Wednesday, April 4, 2012 at 03:06 PM in Economics, Unemployment | Permalink  Comments (12)


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