How losing your job affects your long-term earning potential

Via Ezra Klein comes a graph from an International Monetary Fund discussion paper illustrating the effect of long-term unemployment on the average male’s overall earning potential:

International Monetary Fund – The Challenges of Growth, Employment and Social Cohesion

Loss of earnings: There is empirical evidence that layoffs are associated with substantial loss of earnings both over the short and long run. That is, even when workers are re-employed shortly after displacement, they suffer a decline in wages compared to the pre-displacement job and compared to similar workers that were not displaced.

The decline in earnings is on average observed for job losers in any period, but is most pronounced for job losers during a recession (see Farber, 2005). Studies for the US show that these earnings losses persist even in the long run: 15-20 years after a job loss in a recession, the earnings loss amounts on average to 20% (see e.g. Jacobson et al., 1993; von Wachter et al., 2009).

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