This paper finds that regardless of duration, involuntary job loss leads to significant and long-lasting economic damage to individuals and their families. Specific findings on microeconomic scarring include:
- Excess unemployment during the Great Recession will likely lead to long-run wage losses just for displaced high-tenure workers (those who had the same job for more than three years) totaling more than $1 trillion over the next 20 years (or roughly $50 billion annually).
- Research shows that workers who lose their job involuntarily experience worse health outcomes, and during severe economic downturns, these effects can lead to life expectancy reductions of 1 to 1.5 years.
- According to rigorous studies, involuntary job displacement affects displaced workers’ children by reducing school achievement and even the adult earnings of the affected children.
- Despite the deep and obvious damage done by any spell of involuntary job loss, there is very little compelling evidence that the scarring effects are worse for longer spells.
- Apart from scarring effects, the primary economic damage that is larger for long spells of joblessness (i.e., those lasting more than six months) is the lower incomes that result from unemployment insurance benefits being cut off, which occurs roughly around six months in most states.
- There is growing evidence that employers’ hiring decisions may discriminate against those unemployed for long durations. However, this does not necessarily imply a causal linkage between extended durations and reduced worker productivity.
- In short, there is little in the microeconomic evidence to suggest that long-term unemployment somehow hardens into structural unemployment that is not amenable to addressing through macroeconomic measures to boost demand. As such, policies that will increase aggregate demand are the best way to alleviate long-term unemployment.
Chosen excerpts by Job Market Monitor. Read the whole story at Long-Term Unemployment Has Not Damaged the Productivity of Workers: A Review of the Evidence on Long-Term Unemployment’s Lasting Effects on Workers, Households, and the Economy | Economic Policy Institute.