Unemployed risk a permanent pay cut (Lauren King)

It’s a terrible time to be unemployed. Millions of people are out of work and finding a new job can take months, if not longer.

But the jobless may find that the more lasting damage actually occurs when they return to work.

It’s common to take a pay cut after a job loss. But the reduced income is likely to be permanent for workers who become unemployed during an economic downturn, a new study from the Brookings Institution shows.

Of workers who lost a job during a time of high unemployment (and had been on the job for three years or more), 75% were still earning less than they did before their job loss, even 20 years later, according to the study. The pay hit is likely to be about $112,000 on average, or 19% of their lifetime earnings.

It’s doubtful most of those workers will ever catch up to where their earnings would have been had they been able to stay on the job, said Columbia University economics professor Til von Wachter, one of the authors of the study.

Workers who lose jobs in a good economy also take a hit in pay, but it’s far more modest than those who lose jobs in bad times — only about $65,000, or 10% of their lifetime earnings. And i often takes much less time to return to their previous income level.

Part of the problem is that such a large number of the unemployed during an economic downturn are forced to change fields because the opportunities do not return in their former industry, Von Wachter said. Those workers are essentially forced to start over, which puts them at an income disadvantage.

“If you lose your job during a boom and you stay in the same occupation, your losses are small,” he said.

This is a reality that Craig Olson, 47, knows very well. A former marketing executive who lost his job in January 2010 when the software company he worked for was sold, he found nothing available in the marketing field, despite going on about 25 job interviews.

He eventually decided to change careers and accepted a sales position from an insurance firm selling long-term care insurance. He said he knew his first few months in the commission-only job wouldn’t pay much, but he’s hopeful about the future.


About internalmarket

This blog and its accompanying Twitter account have been established as social media learning tools for the Internal Communications and Employee Engagement class at Columbia College Chicago. Through this blog, we will share our observations about current events, change management and employee communications theory, and the application of social media in shaping employee engagement.
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