Matthew S. Rutledge, Natalia Orlova, and Anthony WebbCenter for Retirement Research at Boston College

14th Annual Retirement Research Consortium ConferenceWashington, DC August 3, 2012

How Will Older Workers Who Lose Their Jobs During the Great Recession

Fare in the Long Run?

Source: U.S. Bureau of Labor Statistics. Current Population Survey, 1979-2012. Washington, DC.

Unemployment Rate by Age, 1979-2012 – Men

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Unemployment among older workers is at unprecedented levels.

197919811984198619891991199419961999200120042006200920110

2

4

6

8

10

12

All ages50-5455 and over

Year

Une

mpl

oym

ent r

ate

(%)

Our paper addresses three questions:

1. What are the long-run effects of job loss on older workers?

2. Do these effects vary with the state of the labor market?

3. What will be the long-run effects of the Great Recession on older workers?

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Previous literature• von Wachter, Song, and Manchester (2007) and Stevens (1997)

“Scarring effects” of job loss.

• Johnson and Kawachi (2007) and Chan and Stevens (1999, 2001, 2004) Job loss is associated with substantial reductions in earnings and assets.

• Gibbons and Katz (1991)Workers laid off in recession may be of higher average quality.

• von Wachter and Davis (2012) Long-run impact of job loss greater for those laid off during recessions.

• Rodriguez and Zavodny (2000), Munnell, Sass, and Zhivan (2009), and Farber (2011) Displacement rates of older workers increasing and tenure decreasing.

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What are the long-run effects of job loss on older workers?

• Use Health and Retirement Study data on workers under 65.

• Econometric model: 

• Model controls for observable, but not for unobservable, differences at baseline – unobservable differences may be smaller for those experiencing mass layoffs.

• Model includes MSA fixed effects – but results of other specifications are similar.

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Workers who lose their jobs have lower socio-economic status before job loss.

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Displaced Not displaced

White collar 0.275 0.372

DB pension coverage 0.132 0.272

DB and DC pension coverage 0.100 0.149

Earnings (if working) $39,900 $51,300

Median financial assets $30,500 $45,800

Union member (if working) 0.102 0.165

Education

Less than high school 0.159 0.131

Some college 0.452 0.510

Comparison of Displaced Workers With Those Who Were Not Displaced – Prior to Displacement

Source: Authors’ calculations.

• Worker ability is not observable in the HRS.

• No evidence that workers displaced when unemployment rate is high are of higher socio-economic status.

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Do more able workers lose their jobs in a recession?

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Those experiencing mass layoffs are of higher socio-economic status than those otherwise displaced.

Comparison of Workers Experiencing Mass Layoffs With Those Otherwise Displaced

Mass layoffs Other displacement

White collar 0.330 0.252

Manufacturing 0.422 0.282

Trade and non-professional services 0.154 0.284

Has health insurance 0.799 0.668

Earnings $44,200 $37,200

Source: Authors’ calculations.

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Displaced Not displaced

White collar 0.215 0.347

DB pension coverage 0.091 0.150

DB and DC pension coverage 0.060 0.091

Earnings (if working) $32,000 $43,400

Median financial assets $31,800 $66,000

Comparison of Displaced Workers With Those Who Were Not Displaced – 10 Years After Initial Observation

Source: Authors’ calculations.

Unsurprisingly, displaced workers have lower socio-economic status 10 years later.

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Outcome Mass layoff Other displacement

Financial wealth -30.4% -29.8%

Earnings -20.3% -12.0%

Probability of:

Working -6.3% -3.5%

Subsequent layoff 11.1% 5.9%

Number of years worked -0.80 -0.92

Robust to Alternative Specifications

Source: Authors’ calculations.

Effects of displacement on years worked, financial wealth at retirement, and labor market outcomes are modest, but significant.

Ten-year Outcome

• Outcomes for mass layoffs generally not significantly different from those for other displacements (no selection, or selection being offset by greater competition for new jobs among victims of mass layoffs).

• MSA-level unemployment rate generally not statistically significant.

• Impact on subsequent job loss muted by retirements of displaced workers.

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Other long-run effects of job loss.

• No evidence that it is worse to be displaced when unemployment is high.

• A surprising finding – one would expect workers laid off in recessions to struggle more.

• Are workers laid off in recessions of unobservably higher quality?

• If this were the case, we would expect those experiencing mass layoffs to fare relatively worse in recessions. But no evidence of this effect.

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Is it worse, in the long run, to be laid off when unemployment rates are high?

• Counterfactual – what if the Great Recession had been a Small Recession – unemployment at 2001-2003 levels?

• Predict probabilities of mass/other layoff with actual/counterfactual unemployment rates

• Predict 10-year outcomes, given predicted layoff status

• Identification from MSAs that experienced their own “Great Recession” some time in the period 1992-2000

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What will be the long-run effects of the Great Recession on older workers?

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Outcome “Great Recession” “Small Recession”

Experience mass layoff 3.0% 2.6%

Otherwise displaced 7.1% 6.2%

Working in 2018 28.9% 31.4%

Years worked from 2008 6.43 6.53

Number of layoffs 0.831 0.819

Comparison of Long-run Predicted Impact of “Great Recession” with Counterfactual of “Small Recession”

Source: Authors’ calculations.

What will be the long-run effects of the Great Recession on older workers? (cont’d)

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Conclusion

• Long-run effects of the Great Recession are, on average, relatively modest.

• But they can be substantial for the minority of households whose work lives are cut short.

• Will affect not only labor supply, but also earnings and other determinants of financial preparedness for retirement.