Job loss can lead to long-term negative effects on finances, children
Diary of a Recession Baby
WASHINGTON (MarketWatch) -- Since being laid off as a machine operator more than a year ago, Robert Blalock has drained his individual retirement account. Now the 56-year-old resident of Fernley, Nev., doesn't expect to retire until his 70s.
Worried Americans look inward
Jerry Seib discusses why isolationism, protectionism and anti-immigration sentiment is growing as the economy slumps.The long-term negative effects of unemployment can take different dimensions, said Harry Holzer, an economist at Georgetown and the Urban Institute. There will be earnings losses, and kids may have trouble in school, he and other economists said.
For those who lose a job, the consequences of a layoff are "severe and long lasting," Till von Wachter, an economist at Columbia University, recently testified before U.S. lawmakers.
"The average mature worker losing a stable job at a good employer will see earnings reductions of 20% lasting over 15 to 20 years," von Wachter said.
"The effect of a layoff is devastating," he told MarketWatch. "On average it will take a long time to recover."
Others agreed. "It's a huge hit, and also persistent," said Heidi Shierholz, a labor economist with Economic Policy Institute.
Earnings losses vary among demographic groups and industries, but no group is exempt from "significant and long-lasting costs of job loss," von Wachter said.
Still, that doesn't mean all laid-off workers will suffer the same fate.
"It's not predetermined," von Wachter said. "All of these statements are about averages. Workers can do things differently and they may advance and recover more quickly."
Education matters
Education is a key factor in a laid-off worker's career prospects, many economists said."If those same people who lose work experience now take the time to get a little more education, an extra degree or certificate, if it's in the right field that can offset the loss," Holzer said.
For his part, Blalock has been working to expand his skill set. He recently earned his bachelor's degree in special education, and is looking for a teaching job.
"This is one of those things where you kind of circle the wagons, and hope for things to change a little bit," he said. "Hopefully, things will turn around. Sometimes you have to regroup."
While additional training can be helpful, it doesn't help all workers, Holzer said.
"The older they are, the tougher it is, especially for less-educated workers," Holzer said. "If they have never set foot onto a community college campus, and they are 50 years old, it's a hard sell."
Also, the cost of education in both time and money can be off-putting. Also, education isn't a cure-all, von Wachter said.
In the short run, lower-educated workers often are hit hardest by unemployment, in terms of number of people laid off, than more educated labor-market entrants, von Wachter said.
"However, in the long run, less-educated individuals tend to recover faster," he said. "In fact, it is workers in the middle of the education distribution who can suffer close to permanent earnings consequences from entering the labor market in a recession; those individuals at the bottom and the top of the education distribution recover more quickly from a bad initial start.
"Thus, more education in itself does not yield full insulation against shocks occurring in the aggregate labor market," he said.
However, he said, more education may still raise earnings and employment stability.
Negative effects for children, young adults
Adults aren't the only ones affected by a dismal labor market. A parent's job loss raises the risk that his child will repeat a grade in school, according to recent research by economist Ann Huff Stevens at the University of California at Davis.If a parent gets laid off, the probability of a child's grade retention rises by 0.8 percentage points, raising it to an average of 6.3%, according to the research.
"If we view grade repetition as a signal of academic difficulties, these short-run effects may be consistent with findings of longer-term negative outcomes in education and earnings," Stevens wrote.
And of course, the weak labor market also hits young adults. Fran Dinehart, a 24-year-old cousin of mine who just earned her master's degree in social work, is currently looking for a good full-time position. She's somewhat concerned about her prospects.
"I'm pretty worried. I'm not seeing a lot of opportunities to do the kind of work I'd like to be doing," Fran said.
She may have good reason to worry: The unemployment rate for 20- to 24-year olds was 15.6% in July, compared with 9.5% for the general population. Read government data about employment.
In school, Fran specialized in gerontology. Ideally, she would like to work with an agency that helps families and communities maintain seniors in their homes as long as possible. "It's pretty competitive," she said. "I'm not in the position to turn down anything, so I'm not going to be picky about wages."
While unemployment remains highs, young cohorts will be adversely affected, Shierholz said.
"We have this huge swath of workers who are going to see these persistent effects," Shierholz said. "For people who lost a job, or didn't get that first good job, it's not clear how we are going to keep [negative] effects from happening to them."
Young workers "will lose early work experience that they would otherwise have had," Holzer said. "They seem to be permanently on a lower trajectory."
Ruth Mantell is a MarketWatch reporter based in Washington.
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