Tag Archive for: 6 Ways the Recession Inflicted Scars on Millions of Unemployed Americans

The recession ended nearly seven years ago. But for millions of Americans, the damage will endure for decades to come.  An estimated one in six U.S. workers lost a job between 2007 and 2009. The labor market’s post recession recovery was painfully slow and halting. The full toll won’t be known for decades, but it already is clear that years of widespread, persistent unemployment and underemployment have had serious consequences for individual workers and the nation as a whole.

Here are some of the scars inflicted on American workers by the 2007-2009 recession, based on decades of academic research into the effects of job loss.

Taking a Pay Cut
A layoff means the loss of a paycheck. But even when unemployed workers find new jobs, they usually earn less than did before – especially during recessions, when it is more difficult to find a well-paying job. For workers who were displaced in 2007-2009 and re-employed by early 2010, the average drop in inflation-adjusted weekly earnings was 17.5%, according to an analysis of Labor Department.  Many others were unable to find work at all. Historically, only about one in four displaced workers gets back to their pre-layoff earnings after five years.

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Smaller Paychecks for Decades
Even years later, workers who were laid off tend to earn smaller paychecks compared with workers who kept their jobs. The estimated scale of the loss can vary from study to study. A 2011 paper said earnings losses of 15% to 20% after 10 to 20 years for people displaced during recessions, and even people displaced during economic expansions saw long-term losses of about 10%. A 2015 paper found a long-term wage hit of more than 10%, with more severe losses after a second or third displacement. Long-term unemployment can be especially damaging, with workers who were unemployed longer than six months earning 32% less after 10 years versus a 9% loss for those with a shorter spell of joblessness, according to a 2014 working paper. A February working paper said that comparing displaced workers with a control group of continuously employed workers may overstate the damage to earnings; an alternative approach found a loss of 5% after 10 years, instead of 25%.

Homeownership Gap
The Boston Fed’s analysis found workers who have been unemployed also were less likely to own a home. “This homeownership gap closes over time … as more years elapse since an individual’s last unemployment spell,” Boston Fed economist Daniel Cooper wrote. “Indeed, the gap is roughly halved after 10 years and is nonexistent after 20 years.” But for workers who were unemployed longer than six months, he found, the homeownership gap did not close even after 20 years.

Psychological Problems
The cost of job loss isn’t limited to money. Studies have found unemployment generates feelings of anxiety and shame and is linked with higher rates of depression, according to a review by University of California, Los Angeles sociologist Jennie Brand. But there may be a silver lining: Ms. Brand said the psychological effects may be less severe when people are displaced during a severe recession like the 2007-2009 downturn, when so many other people are in similar situations. “When you lose a job and it’s a big recession and people are coming to expect it’s a possibility, it’s less likely you think, ‘There’s something wrong with me, and I lost my job because I’m not a great worker,’” she said in an interview.

Shorter Lifespans
The evidence is somewhat mixed on how unemployment affects physical health. Some studies have found health actually improves during recessions as, for instance, people smoke and drink less. But other research points to negative effects, including a 2009 study that found a spike in mortality for Pennsylvania men who were laid off in the early 1980s. Economists Anne Case and Angus Deaton have found that the death rate for middle-aged whites in the U.S. has been rising as a result of suicides, substance abuse and liver diseases, all possibly the result of economic distress. And a working paper this year found “strong evidence that economic downturns lead to increases in substance-use disorders involving hallucinogens and prescription pain relievers.”

The Next Generation
The pain of a layoff can spread beyond the person who loses his or her job. A number of studies have found that children of displaced workers also suffer consequences. Students are more likely to repeat a grade after a parent is laid off, and a father’s layoff leads toincreased rates of anxiety and depression in children. A 2008 study found that annual earnings of men whose fathers had been laid off were about 9% lower than the earnings of otherwise similar children whose fathers stayed employed. “The results suggest that the long-term consequences of unexpected job loss extend beyond the effect on one’s own income to the eventual labor market outcomes of one’s children,” the researchers wrote

WSJ.com | May 10, 2016 | BEN LEUBSDORF