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Matthew S. Rutledge, Natalia Orlova, and Anthony Webb

How Will Older Workers Who Lose Their Jobs During the Great Recession Fare in the Long Run?. 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.

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Matthew S. Rutledge, Natalia Orlova, and Anthony Webb

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  1. How Will Older Workers Who Lose Their Jobs During the Great Recession Fare in the Long Run? Matthew S. Rutledge, Natalia Orlova, and Anthony Webb Center for Retirement Research at Boston College 14th Annual Retirement Research Consortium Conference Washington, DC August 3, 2012

  2. Unemployment among older workers is at unprecedented levels. Unemployment Rate by Age, 1979-2012 – Men Source: U.S. Bureau of Labor Statistics. Current Population Survey, 1979-2012. Washington, DC.

  3. Our paper addresses three questions: What are the long-run effects of job loss on older workers? Do these effects vary with the state of the labor market? What will be the long-run effects of the Great Recession on older workers?

  4. 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.

  5. 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.

  6. Workers who lose their jobs have lower socio-economic status before job loss. Comparison of Displaced Workers With Those Who Were Not Displaced – Prior to Displacement Source: Authors’ calculations.

  7. Do more able workers lose their jobs in a recession? • Worker ability is not observable in the HRS. • No evidence that workers displaced when unemployment rate is high are of higher socio-economic status.

  8. Those experiencing mass layoffs are of higher socio-economic status than those otherwise displaced. Comparison of Workers Experiencing Mass Layoffs With Those Otherwise Displaced Source: Authors’ calculations.

  9. Unsurprisingly, displaced workers have lower socio-economic status 10 years later. Comparison of Displaced Workers With Those Who Were Not Displaced – 10 Years After Initial Observation Source: Authors’ calculations.

  10. Effects of displacement on years worked, financial wealth at retirement, and labor market outcomes are modest, but significant. Ten-year Outcome Robust to Alternative Specifications Source: Authors’ calculations.

  11. Other long-run effects of job loss. • 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.

  12. Is it worse, in the long run, to be laid off when unemployment rates are high? • 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.

  13. What will be the long-run effects of the Great Recession on older workers? • 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

  14. What will be the long-run effects of the Great Recession on older workers? (cont’d) Comparison of Long-run Predicted Impact of “Great Recession” with Counterfactual of “Small Recession” Source: Authors’ calculations.

  15. 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.

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