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Losing a Job During a Recession 1 (April 2010)

handle is hein.congrec/cbo07047 and id is 1 raw text is: A series of issue summaries from the Congressional Budget Office APRIL 22, 2010 Losing a Job During a Recession Each year, even when the economy is growing, millions of people lose a job for reasons other than poor perfor- mance or misconduct. The ability of employers to quickly adjust the size of their workforces in response to changes in demand is generally considered a source of strength for the U.S. economy over the long term, because it prompts a shift of labor resources toward areas of higher productivity. Some people, however, bear sub- stantial costs from employers' flexibility-particularly during recessions, when many people lose jobs and new opportunities are relatively scarce. This issue brief reviews the research on the short- and long-term effects of involuntary job loss for reasons other than poor performance or misconduct on people's future employment and earnings.' In light of the recession that began in December 2007 and the Congressional Budget Office's (CBO's) projection that, under current law, the unemployment rate will remain elevated for a number of years, the brief focuses on the effects of involuntary job loss during periods of weak economic activity.2 The brief also summarizes some of the government programs that help people who have lost their job. Many people who lose a job involuntarily find a new job, some quite quickly (within a month or so) and others after more time. Loss of a job often means a loss of health insurance for the worker and perhaps for his or her fam- ily, though the recently enacted health care legislation will enhance the opportunities for people to purchase health insurance. Some people who lose a job involuntarily do 1. Hereafter, in this brief, the term involuntary job loss excludes job loss for poor performance or misconduct. 2. Recessions examined here include those from November 1973 to March 1975; January 1980 to July 1980; July 1981 to November 1982; July 1990 to March 1991; March 2001 to November 2001; and December 2007 to June 2009. All of those dates but the last one were identified by the National Bureau of Economic Research (NBER); the NBER has not officially determined the end of the last recession, but CBO estimates that it occurred last June. not find a new job. Some of those people may decide not to look for a new job, while others may look for a job but be unsuccessful in their search. Even among workers who find a new job, many end up with lower earnings, not only in the short term but also over a period of many years. Several points warrant attention at the outset. First, out- comes for people who lose their job for cause-that is, because of their poor performance on the job-may differ significantly from those examined in this brief. Second, the best information on the consequences of job loss during recessions necessarily comes from past reces- sions, because data regarding job loss during the most recent recession are generally not yet available. But no two recessions are alike: The most recent recession is asso- ciated with a specific set of challenging circumstances, so the labor market downturn has been especially severe, and output is expected to grow fairly slowly during this recovery.3 Third, many of the results presented in this brief represent what might be expected to happen, on average, to people who lose a job during a recession. The array of actual outcomes is quite broad, however. Some people who lose a job during a recession will recover quickly, while others will suffer worse effects than the average person who lost a job. Fourth, job loss has many potential consequences that are not discussed here. For example, people who lose a job tend to have more health problems later in life, their family life can suffer, and entire communities may struggle, especially if job loss is concentrated in particular geographic areas. 4 3. Congressional Budget Office, ike Budget andhconomnic Ourlook: Fis cal Nari 2010 to 2020 (January 2010), Chapter 2. 4. See Sarah A. Burgard, Jennie E. Brand, and James S. House, Toward a Better Estimation of the Effect of Job Loss on Health, Journal of Health and Social Behavior, vol. 48, no. 4 (December 2007), pp. 369-384. CBO

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