How severe are the effects of job losses from the financial crisis?

Of those who lost full-time jobs between 2007 and 2009, only about 50 percent were employed in January 2010 and only about 75 percent of those were re-employed in full-time jobs.

The economic downturn that began in December 2007 was associated with a rapid rise in unemployment and with an especially pronounced increase in the number of long-term unemployed. In Job Loss in the Great Recession and its Aftermath: U.S. Evidence from the Displaced Workers Survey (NBER Working Paper No. 21216), Henry S. Farberuses data from the Displaced Workers Survey (DWS) from 1984–2014 to study labor market dynamics. From these data he calculates both the short-term and medium-term effects of the Great Recession’s sharply elevated rate of job losses. He concludes that these effects have been particularly severe.

Of the workers who lost full-time jobs between 2007 and 2009, Farber reports, only about 50 percent were employed in January 2010 and only about 75 percent of those were re-employed in full-time jobs. This means only about 35 to 40 percent of those in the DWS who reported losing a job in 2007–09 were employed full-time in January 2010. This was by far the worst post-displacement employment experience of the 1981–2014 period.

The adverse employment experience of job losers has also been persistent. While both overall employment rates and full-time employment rates began to improve in 2009, even those who lost jobs between 2011 and 2013 had very low re-employment rates and, by historical standards, very low full-time employment rates.

In addition, the data show substantial weekly earnings declines even for those who did find work, although these earnings losses were not especially large by historical standards. Farber suggests that the earnings decline measure from the DWS is appropriate for understanding how job loss affects the earnings that a full-time-employed former job-loser is able to command.

The author notes that the measures on which he focuses may understate the true economic cost of job loss, since they do not consider the value of time spent unemployed or the value of lost health insurance and pension benefits.

Farber concludes that the costs of job losses in the Great Recession were unusually severe and remain substantial years later. Most importantly, workers laid off in the Great Recession and its aftermath have been much less successful at finding new jobs, particularly full-time jobs, than those laid off in earlier periods. The findings suggest that job loss since the Great Recession has had severe adverse consequences for employment and earnings.

This article is published in collaboration with NBER Digest. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Matt Nesvisky writes for NBER Digest.

Image: People wait in line to enter the Nassau County Mega Job Fair at Nassau Veterans Memorial Coliseum in Uniondale, New York. REUTERS/Shannon Stapleton