Someone who experiences a spell of unemployment for any length of time won’t catch up in earnings to those who didn’t lose their jobs for nearly two decades, according to new research from the Federal Reserve Bank of Boston.
Unemployed workers’ wages take an immediate 31 percent hit compared to those who stay in their jobs. The effect dissipates over time, and these workers’ wages see a 2 percent recovery every year after the first drop. But even so, 10 years later, their incomes are nearly 14 percent lower than they would have been in the absence of unemployment, and they only fully recover 19 years later.
Perhaps unsurprisingly, given the discrimination the long-term unemployed face in the labor market, those who are out of work for 26 weeks or more see an immediate 67 percent drop in wages, compared to 24 percent for short-term unemployed workers. While the long-term unemployed recover at a rate double that of the short-term unemployed, 10 years later their incomes will still be 32 percent less than those who didn’t lose their jobs, while wages for the short-term unemployed will be just 9 percent lower. “The earnings gap also closes about three or four years sooner for short-term unemployed workers than for long-term unemployed workers,” the author notes, adding, “for a given number of years since an unemployment spell, someone unemployed for 40 weeks had nearly 1.5 lower earnings than someone unemployed for only 10 weeks.”
He also found a “strong negative relationship” between experiencing unemployment and the likelihood of owning a home, which was even more pronounced for the long-term unemployed.
This effect on wages may be part of why workers are seeing so little growth in pay since the recession. Unemployment has remained stubbornly high, while wages have dropped 7 percent since 2007. They are currently growing at the slowest rate since at least 1965.
But low wage growth has impacted everyone for some time now. Workers have experienced a lost decade in wage growth.