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August 4, 2009
Income Loss Persists Long After Layoffs
By MICHAEL LUO
RIVIERA BEACH, Fla. — Chuck Dettman said he had not really considered the notion back in 2001 that he and his friends in a job-search support group would never recover from being laid off.
“I think there’s maybe only one or two that have been successful in making what they did then,” Mr. Dettman said.
Taken together, their struggles are stark illustration that it can take years for a worker’s earnings to bounce back after a layoff, and that it can take even longer for a layoff during a recession. Economists, in fact, say income losses for workers who are let go in a recession can persist for as long as two decades, a depressing prognosis for the several-million people who have lost their jobs in the current recession.
“On average, most workers do not recover their old annual earnings,” said Till von Wachter, an economics professor at Columbia University, who recently completed a working paper with two other economists that examined the long-term earnings of workers who lost their jobs in the recession of the early 1980s.
Mr. Wachter studied workers who had been with their companies at least three years, then lost their jobs when their employers reduced their work forces by at least 30 percent. He found that even 15 to 20 years later, most on average had not returned to their old wage levels. He also concluded that their earnings were about 15 percent to 20 percent less than they would have been had they not been laid off.
The largest wage losses are typically for workers who had long tenures at their previous companies. The stability often allows them to build up skills specific to their employers or their industries and to accrue corresponding wage increases, but those skills can be worth less to other companies.
Older workers’ wages usually slide more than those of younger workers.
Those with college degrees do slightly better than those without.
The networking group that Mr. Dettman helped form in 2001 was initially made up mostly of former colleagues of his from Pratt & Whitney, the jet engine maker, which laid off hundreds at the end of 2000 in a restructuring. The group members were all in their 40s and 50s.
Interviews with seven early members of the group found that many had been forced to drastically change their lifestyles to cope with lower incomes. Several have struggled with long bouts of unemployment. Some were laid off several times. Many have been forced to lean heavily on spouses’ incomes.
Mr. Dettman, who was a business analyst and earned just over $50,000 after nearly 20 years with Pratt, spent almost four years looking for work, exhausting his savings and his 401(k). He finally took a job as the chief financial officer of a drug and alcohol detox clinic run by his daughter and his son-in-law, getting paid three-quarters of what he used to make, without benefits. He quit two years ago to start his own Christian counseling service but has yet to draw a paycheck.
Jim Clark, 60, a former engineering assistant at Pratt who made about $49,000 a year, went back to school to earn a bachelor’s degree in organizational management but has still not found full-time paid employment. He now scrapes together about $20,000 a year as a cantor at his Roman Catholic parish on Sundays and by singing at weddings and funerals.
Bill Sankey, 62, a computer programmer, earned about $55,000 a year for a company that owned Pizza Hut franchises, before being laid off in 2001 when the company was sold. Since then, Mr. Sankey has been hired and laid off twice. At one point, he was making more than he did before his 2001 layoff. At his latest job, he is back to making about the same, though with inflation factored in, he is probably making less.
“I really haven’t progressed anywhere financially in eight years,” he said.
http://www.nytimes.com/mem/sendtophone.html
“I think there’s maybe only one or two that have been successful in making what they did then,” Mr. Dettman said.
Taken together, their struggles are stark illustration that it can take years for a worker’s earnings to bounce back after a layoff, and that it can take even longer for a layoff during a recession. Economists, in fact, say income losses for workers who are let go in a recession can persist for as long as two decades, a depressing prognosis for the several-million people who have lost their jobs in the current recession.
“On average, most workers do not recover their old annual earnings,” said Till von Wachter, an economics professor at Columbia University, who recently completed a working paper with two other economists that examined the long-term earnings of workers who lost their jobs in the recession of the early 1980s.
Mr. Wachter studied workers who had been with their companies at least three years, then lost their jobs when their employers reduced their work forces by at least 30 percent. He found that even 15 to 20 years later, most on average had not returned to their old wage levels. He also concluded that their earnings were about 15 percent to 20 percent less than they would have been had they not been laid off.
The largest wage losses are typically for workers who had long tenures at their previous companies. The stability often allows them to build up skills specific to their employers or their industries and to accrue corresponding wage increases, but those skills can be worth less to other companies.
Older workers’ wages usually slide more than those of younger workers.
Those with college degrees do slightly better than those without.
The networking group that Mr. Dettman helped form in 2001 was initially made up mostly of former colleagues of his from Pratt & Whitney, the jet engine maker, which laid off hundreds at the end of 2000 in a restructuring. The group members were all in their 40s and 50s.
Interviews with seven early members of the group found that many had been forced to drastically change their lifestyles to cope with lower incomes. Several have struggled with long bouts of unemployment. Some were laid off several times. Many have been forced to lean heavily on spouses’ incomes.
Mr. Dettman, who was a business analyst and earned just over $50,000 after nearly 20 years with Pratt, spent almost four years looking for work, exhausting his savings and his 401(k). He finally took a job as the chief financial officer of a drug and alcohol detox clinic run by his daughter and his son-in-law, getting paid three-quarters of what he used to make, without benefits. He quit two years ago to start his own Christian counseling service but has yet to draw a paycheck.
Jim Clark, 60, a former engineering assistant at Pratt who made about $49,000 a year, went back to school to earn a bachelor’s degree in organizational management but has still not found full-time paid employment. He now scrapes together about $20,000 a year as a cantor at his Roman Catholic parish on Sundays and by singing at weddings and funerals.
Bill Sankey, 62, a computer programmer, earned about $55,000 a year for a company that owned Pizza Hut franchises, before being laid off in 2001 when the company was sold. Since then, Mr. Sankey has been hired and laid off twice. At one point, he was making more than he did before his 2001 layoff. At his latest job, he is back to making about the same, though with inflation factored in, he is probably making less.
“I really haven’t progressed anywhere financially in eight years,” he said.
http://www.nytimes.com/mem/sendtophone.html
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