The Earnings Impact of a Job Loss

Princeton University Professor Henry Farber recently spoke with the Atlanta Fed’s Center for Human Capital Studies. Farber discussed some of his current research, including a paper titled “Job Loss in the Great Recession: Historical Perspective from the Displaced Workers Survey, 1984–2010.” This paper explores the experience of those who lost a job as measured by the biennial Displaced Workers Survey conducted by the U.S. Bureau of Labor Statistics. The January 2010 version of the survey asked the question:

“During the last 3 calendar years, that is, January 2007 through December 2009, did (name/you) lose a job or leave one because: (your/his/her) plant or company closed or moved, (your/his/her) position or shift was abolished, insufficient work or another similar reason?”

I will focus here on Farber’s estimates of the proportionate change in average real weekly earnings for workers who lost a full-time job in the last three years but had a job at the time of the survey. The time series of various cuts of these estimates are shown in the following chart.

The earnings declines are clearly cyclical—larger declines during periods of weak labor market conditions and smaller declines when labor markets are stronger. While I had expected to see an earnings decline for workers who had lost a job, I also thought the 2007–09 period would have witnessed a much greater drop in earnings (via some combination of declines in hourly pay and declines in hours) than the declines seen in previous periods. This chart, however, suggests that the average weekly earnings of those losing full-time jobs did not drop much relative to earlier episodes of labor market weakness.

Those who lost and then regained a full-time job between 2007–09 (labeled “FT-FT” in the chart) experienced about a 10 percent decline in earnings on average, and that decline was no greater than during earlier periods. For those who took a part-time job (labeled “FT-PT” in the chart) the proportionate decline is large—about 55 percent. But again, this decline is no greater than the declines experienced in earlier periods. The proportionate earnings decline of about 22 percent for all workers who lost a full-time job and then regained some employment (labeled “FT-Lost” in the chart) is a bit larger than in earlier periods of labor market weakness. This result is because of the increase in the incidence of part-time employment for workers who had lost a full-time job, as shown in the following chart.

In this chart, the fraction of re-employed workers who lost a full-time job during 2007–09 and were working at a part-time job at the time of the 2010 survey was 20 percent—well above historical levels.

My reading of this information is that the lower earnings of re-employed displaced workers don’t appear to be contributing to the current sluggish aggregate income picture significantly more so than in the past. Instead we have to look at other factors, such as the continuing difficulty job losers have had finding a new job and especially a full-time job.

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