Research Funded by Russell Sage Foundation Shows Great Recession Still Plagues Workers With Lower Lifetime Wages
Losing a job often leads to lower earnings that stretch long beyond the time of unemployment. Yet it’s hard to know exactly what causes these lower lifetime earnings.
For displaced workers in Washington state during the Great Recession, earnings dropped suddenly and had still not fully recovered five years later, according to a working paper by labor economists at Princeton University, Michigan State University and the W.E. Upjohn Institute for Employment Research.
Following job displacement, earnings were slashed nearly in half, almost entirely as a result of reduced work hours. But five years later, displaced workers who had reentered the workforce still earned 16 percent less than comparable workers who had not been displaced.
About 45 percent of these long-term earnings losses resulted from reduced work hours, and about 55 percent from lower hourly wages. The majority of displaced workers came from three industries: manufacturing, trade, and professional services like real estate, finance, and management.
“While these displaced workers’ earnings followed the familiar pattern of ‘dip, drop, and partial recovery,’ this wasn’t the case for hourly wages,” said co-lead author Alexandre Mas, professor of economics and public affairs at Princeton’s Woodrow Wilson School of Public and International Affairs. “While overall earnings eventually bounced back as workers’ hours increased, the hourly wages themselves dropped quickly following job loss — and never really recovered.”
The findings have clear implications for policy. The authors suggest that displaced workers’ losses occur mainly because of the loss of a favorable job match, or because displaced workers’ accumulated skills were valued only by the employer where they had been employed. Effective reemployment services could help a worker reestablish a good job match or become reemployed quickly and start re-accumulating firm-specific skills...