Wednesday, March 28, 2012

The long term impact of unemployment

by Bill McBride on 3/28/2012 02:09:00 PM

This is a depressing, but important post from Binyamin Appelbaum at the NY Times Economix: The Enduring Consequences of Unemployment

Our economic malaise has spurred a wave of research about the impact of unemployment on individuals and the broader economy. The findings are disheartening. The consequences are both devastating and enduring.

People who lose jobs, even if they eventually find new ones, suffer lasting damage to their earnings potential, their health and the prospects of their children. And the longer it takes to find a new job, the deeper the damage appears to be.
...
A 2009 study, to cite one recent example, found that workers who lost jobs during the recession of the early 1980s were making 20 percent less than their peers two decades later. The study focused on mass layoffs to limit the possibility that the results reflected the selective firings of inferior workers.

Losing a job also is literally bad for your health. A 2009 study found life expectancy was reduced for Pennsylvania workers who lost jobs during that same period. A worker laid off at age 40 could expect to die at least a year sooner than his peers.

And a particularly depressing paper, published in 2008, reported that children also suffer permanent damage when parents lose jobs.
As Appelbaum notes, much of this research was related to earlier recessions and does not address the issue of duration of unemployment.

Here is a repeat of a graph of duration of unemployment based on the most recent employment report:

Unemployment DurationClick on graph for larger image.

This graph shows the duration of unemployment as a percent of the civilian labor force. The graph shows the number of unemployed in four categories: less than 5 week, 6 to 14 weeks, 15 to 26 weeks, and 27 weeks or more.

One of the defining characteristics of the 2007 recession is the large number of workers unemployed for an extended period (the red line on the graph). The consequences of long term unemployment are probably worse than the studies Appelbaum mentioned.

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