Job Displacements in Recessions
An Overview of Long-Term
Consequences and Policy Options
Till Von Wachter
University of California–Los Angeles National Bureau of Economic Research, Centre for Economic Policy Research, Institute for the Study of Labor
As the U.S. economy continues to recover from the Great Recession, an important unknown is the fate of the millions of workers affected by layoffs and lengthening spells of unemployment. This chapter focuses on the short- and long-term consequences of layoffs and unemployment for affected workers, and on potential policy options to ease the burden of adjustment on workers and their families.
Judging from experience in past recessions, the consequences of layoffs for job losers are severe and persistent across several dimensions. The average mature worker losing a stable job with a good employer will see earnings reductions of 20 percent lasting over 15–20 years. While these earnings losses vary somewhat among demographic groups or industries, no group in the labor market is exempt from significant and long-lasting costs of job loss (von Wachter, Song, and Manchester 2011a).
A job loss is also typically followed by an extended period of instability of employment and earnings. During this period, job losers can experience declines in health. In severe downturns, these health declines can lead to a significant reduction in life expectancy of 1–1.5 years (Sullivan and von Wachter 2009). The consequences of job loss are also felt by workers’ children—who can suffer even into adulthood—and their families. All of these costs are likely to be greater for the long-term unemployed.