Income Loss Persists Long After Layoffs

[interestrateripoff]

http://www.nytimes.com/2009/08/04/us/04lay...ml?ref=business

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.

The country was in a recession then, as now, and the professionals who had just lost their jobs met weekly at a local job center to network and trade advice. Despite the national economic problems, they remained confident that they would not only find work but would also be compensated as they had been in the past.

Eight years later, however, most of the people who formed the core of Mr. Dettman’s group have not made it back to their old income levels, even if they eventually landed jobs.

“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.

One of the main reasons for the drop-offs, according to economists, is that workers who endure a layoff are more likely to be laid off again.

“What tends to happen is the worker has to start over with a new employer, sometimes in a new industry,†said Ann Huff Stevens, an economics professor at the University of California, Davis. “You’re at the bottom of the totem pole again.â€

(Although some unqualified workers are undoubtedly laid off, Mr. Wachter said he tried to correct for that possibility in his study. He focused on large-scale layoffs to ensure he was following mostly workers who lost their jobs through no fault of their own.)

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.

The only former group member interviewed who is now earning more than she did before is Karen Carron, a 19-year Pratt veteran and computer programmer. Ms. Carron, 49, who has a master’s degree in computer science, made about $69,000 a year as part of a team producing software for the F-35 Lightning II fighter jet.

This certainly doesn't bode well for those with debts, how many will need jobs which pay a similar wage as before to stay solvent. If your older and been sensible you should have mostly paid down your debts but with MEW all the rage that may not be the case. If you can't recovery your income many are going to be in trouble for years trying to pay down debts on reduced incomes.

We appear to be in for a long hard slog to sort this mess out.

[crashologist]

http://www.nytimes.com/2009/08/04/us/04lay...ml?ref=business

This certainly doesn't bode well for those with debts, how many will need jobs which pay a similar wage as before to stay solvent. If your older and been sensible you should have mostly paid down your debts but with MEW all the rage that may not be the case. If you can't recovery your income many are going to be in trouble for years trying to pay down debts on reduced incomes.

We appear to be in for a long hard slog to sort this mess out.

They will have to go bankrupt.

[fluffy666]

This certainly doesn't bode well for those with debts, how many will need jobs which pay a similar wage as before to stay solvent. If your older and been sensible you should have mostly paid down your debts but with MEW all the rage that may not be the case. If you can't recovery your income many are going to be in trouble for years trying to pay down debts on reduced incomes.

We appear to be in for a long hard slog to sort this mess out.

Don't forget that the wonder of a low-inflation environment means that debts have not been part-retired by inflation, so that real-terms pay cut hurts far more than in previous years.

[HumanAction]

I think you have to realise that once laid-off at the start of a recession, as I was in January, you aren't going to match your previous salary. I realised that pretty quickly and lowered my price by about 25% immediately. Got me nowhere. I have a second interview with a company tomorrow at less than 2/3rds of my previous salary, if I get it I will be very very happy. If not then jobs at around 50% of my previous salary will become fair game. I'm lucky in that I can probably just afford to live on that type of cut ( though it wont be very easy )..... I suspect there are a lot out there who simply cannot do so.