NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Job Loss in the Great Recession

Mean duration of unemployment ... hit a new high in the Great Recession: a seasonally adjusted 35 weeks versus about 20 weeks at the peak of each of the previous three downturns.

In Job Loss in the Great Recession: Historical Perspective from the Displaced Workers Survey, 1984-2010 (NBER Working Paper No. 17040), Henry Farber notes that the extent of unemployment, the difficulty in finding a new job, and lost earnings for the unemployed were all especially high during this downturn. "It is clear that the dynamics of unemployment in the Great Recession are fundamentally different from unemployment dynamics in earlier recessions," he writes.

For example, although unemployment rates in this most recent recession were similar to those of the severe downturn in the 1980s, the rate of job loss was much higher this time (16 percent versus less than 13 percent), according to Farber's analysis of the Bureau of Labor Statistics' Displaced Workers Surveys (DWS). As in the previous three recessions, less educated workers were more vulnerable to layoffs than more educated ones, but even those with college degrees have seen their vulnerability to layoffs increase over time. Their job loss rate during 2007-9, at 11 percent, was at the highest level observed since the DWS data were first collected in the early 1980s. The mean duration of unemployment also hit a new high in the Great Recession: a seasonally adjusted 35 weeks versus about 20 weeks at the peak of each of the previous three downturns.

Furthermore, fewer than half of those who lost a job during the recent recession were employed as of 2010 - a significantly lower rate of reemployment than in the recoveries from the three previous recessions. Female job losers were less likely to be employed and more likely to have left the labor force than males who lost a job. Older job losers (those 55-64 years old) used to be much more likely than younger job losers to move out of the labor force, but that gap has narrowed in recent years. The most recent downturn was so severe that no group escaped its effects. "[T]he re-employment experience of job losers is substantially worse for those who lost jobs in the Great Recession than in any earlier period in the last thirty years," Farber writes.

Workers' earnings also have taken a hit. Those who were reemployed after losing a job during the Great Recession, on average, earned 17.5 percent less per week than in their old jobs. That was the largest decline since 1984. Among those who lost full-time jobs, the negative impact was even greater: they were earning 21.8 percent less. One reason for that larger loss is the move of many full-time job losers to part-time work. Of those who lost a full-time job and were reemployed, about one in five held a part-time job. Even among those who lost full-time jobs and found new full-time jobs, the overall loss in weekly earnings (including earnings increases they would have earned had they kept their original jobs) was about 11 percent. However, this is not high when compared with the decline in previous recessions.

As grim as these earnings data are, the DWS data probably paint too rosy a picture overall, Farber warns. "First, time spent unemployed by those workers who are re-employed is not considered. Second, more hinges on employment, particularly full-time employment, in the U.S. than in other developed countries. Health insurance and pensions are closely linked to employment, and many workers do not have alternative access to these important benefits. This makes job loss an expensive and damaging event on average."

--Laurent Belsie

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