Presentation on theme: "Matthew S. Rutledge, Natalia Orlova, and Anthony Webb Center for Retirement Research at Boston College 14 th Annual Retirement Research Consortium Conference."— Presentation transcript:
Matthew S. Rutledge, Natalia Orlova, and Anthony Webb Center for Retirement Research at Boston College 14 th Annual Retirement Research Consortium Conference Washington, 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 1 Unemployment among older workers is at unprecedented levels.
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? 2
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. 3
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. 4
Workers who lose their jobs have lower socio-economic status before job loss. 5 DisplacedNot displaced White collar0.2750.372 DB pension coverage0.1320.272 DB and DC pension coverage0.1000.149 Earnings (if working)$39,900$51,300 Median financial assets$30,500$45,800 Union member (if working)0.1020.165 Education Less than high school0.1590.131 Some college0.4520.510 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. 6 Do more able workers lose their jobs in a recession?
7 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 layoffsOther displacement White collar0.3300.252 Manufacturing0.4220.282 Trade and non-professional services0.1540.284 Has health insurance0.7990.668 Earnings$44,200$37,200 Source: Authors’ calculations.
8 DisplacedNot displaced White collar0.2150.347 DB pension coverage0.0910.150 DB and DC pension coverage0.0600.091 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.
9 OutcomeMass layoffOther displacement Financial wealth-30.4%-29.8% Earnings-20.3%-12.0% Probability of: Working-6.3%-3.5% Subsequent layoff11.1%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. 10 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. 11 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 12 What will be the long-run effects of the Great Recession on older workers?
13 Outcome “Great Recession” “Small Recession” Experience mass layoff3.0%2.6% Otherwise displaced7.1%6.2% Working in 201828.9%31.4% Years worked from 20086.436.53 Number of layoffs0.8310.819 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)
14 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.