Even Short Bouts of Unemployment Cause Lasting Setbacks

In the depths of the recession, from October 2008 to April 2009, around 700,000 people lost their jobs every month. Many of these workers remained jobless for long stretches of time, as this downturn produced the highest levels of long-term unemployment in six decades. Yet even those who found new jobs relatively quickly have experienced lasting setbacks. Two years after losing their jobs, workers who are reemployed are earning 17% less than they previously made, according to a new analysis by the Brookings Institution’s Hamilton Project. The lost income averages about $600 per month.

The people with the biggest income gaps between their old jobs and their new ones are less-educated workers who were with their previous employers for long periods of time, who had to readjust to an unfamiliar economic landscape after losing their jobs and ended up in a different occupation or industry requiring different skills. It is unclear whether the types of jobs they had before the recession will return as the economy picks up steam or whether this represents a permanent shift.

Any period of unemployment, regardless of the economic climate, can set back a worker’s wage and career growth and lead to lower lifetime earnings. However, research from previous economic downturns shows that workers who lose their jobs during a recession experience twice the reduction in lifetime earnings of those who lose their jobs in a healthy economy.

It’s not only the unemployed who are affected: slow wage growth during recessions can have a lasting impact even for workers who don’t lose their jobs. An Urban Institute analysis found that, by suppressing wage growth across the board, the 2008-2009 recession will reduce lifetime earnings and therefore result in retirement incomes that are 4% lower than they otherwise would have been.

While policymakers can’t undo the damage that has been done, if the U.S. economy starts producing a steady stream of jobs it can help mitigate some of these long term effects. New jobs benefit everyone, not just the unemployed, by spurring wage growth and producing higher-paying alternatives for people currently making less than they were before the recession began.

Unemployment and Earnings Losses: A Look at Long-Term Impacts of the Great Recession on American Workers 
Brookings Institution // Michael Greenstone & Adam Looney // November 4, 2011

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