Fast Company

Job Loss and Long-Term Earnings

Perhaps you saw the article in the New York Times this week, “Income Loss Persists Long After Layoffs.” If you missed it, I recommend that you read it, but I warn you that it is depressing news.

The article reports on the recently released research study by Columbia University’s Till von Wachter and two other economists. Using longitudinal data from the Social Security database covering the years 1974 through 2004, the economists analyzed what happened to people who lost their jobs during the recession of 1982. Their sample of people who were laid off consisted only of those who were the victims of mass layoffs, and thus the researchers didn’t count the experiences of people who lost their jobs because of incompetence.

As you’d expect, being laid off meant a cut in earnings, especially in a recession, when it’s hard to bounce back with another job. Compared to similar people who were not laid off, these workers experienced an immediate loss of 30 percent in annual pay. However, you would expect that these workers would eventually find a position paying as well as or better than their lost job. Remember, a decade after they lost their jobs, our economy entered a boom period. One would expect that layoff victims of the 2001 recession would have had a hard time rebounding during the “jobless recovery” that followed, but wouldn’t the victims of 1982 do well?

In fact, the economists found an income gap of 20 percent even 15 to 20 years after the 1982 layoff. And they found a similar, though slightly smaller, income gap for workers who lost their jobs in mass layoffs at the peak of the recovery in the late 1980s.

One reason is that workers who experience one layoff are likely to be laid off again. When they do find work, they have the least seniority and may be in a new firm or industry in which their experience and network are limited.

Typically, the most severely impacted workers are those who have been with one company for many years--until a layoff. The long period of stability has allowed them to build up skills that the employer values, but those specialized skills may be less valuable to other employers. This skill disconnect is especially great if a worker has to move to a different industry.

In some of my books, such as 50 Best College Majors for a Secure Future, I suggest strategies to avoid layoffs. One suggestion is to focus on the core mission of your employer rather than a peripheral function. Many businesses diversify and serve several functions, but usually there’s a central mission that makes money and determines whether the business will succeed or fail. I suggest that workers identify that central function and play a role in it, acquiring the skills that the business needs for future development of this function.

This research report indicates that an additional suggestion is needed: Don’t become overly specialized. If possible, develop skills that can be applied in more than one setting.

In last week’s blog, I discussed my family’s experiences as immigrant workers a century ago, and I referred briefly to one highly successful great-uncle. He had originally been trained as a wood turner, but when he came to the United States he had some success in a business that used the same technology, lathes, to make ornamental plastic umbrella handles. Unfortunately, when the Victorian era ended, ornamental umbrella handles went out of fashion, but my great-uncle bounced back and achieved great wealth in a new business that manufactured cheap pens, again using plastic turned on lathes. His skills were flexible enough to adapt to changing times. Although he was highly skilled--both as a lathe operator and as an entrepreneur--he was not overly specialized.

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