In the News

The Real Cost of Losing a Job

Steven DavisFor millions of workers laid off in the last three years, job loss will mean much more than a temporary shortfall in earnings. Recent articles in the Economist and the Wall Street Journal cite research by Steven Davis, William H. Abbott Professor of International Business and Economics, (pictured) on the long-term earnings experiences of workers who lose jobs when their employers shrink.

The study focuses on workers with at least three years of job tenure before layoff. It finds large, highly persistent earnings shortfalls in the wake of job loss. The long-term effects are more severe for those laid off in times of high unemployment.

The paper - "Recessions and the Costs of Job Loss," prepared by Davis and Till von Wachter of Columbia University for the Brookings Papers on Economic Activity - examines Social Security records from 1974 to 2008 to determine workers' cumulative earnings lost from job displacement. Workers laid off when the unemployment rate is below 6 percent lose, on average, 1.4 years' worth of earnings in present-value terms. Workers laid off when the unemployment rate is above 8 percent lose twice as much, nearly three years' worth of earnings.

Davis also finds in data from the General Social Survey and Gallup polls that worker anxieties about job loss, wage cuts, and difficulty in finding new jobs run parallel to actual labor market conditions. "These data suggest that fears about job loss and other negative labor market outcomes are themselves a significant and costly aspect of economic downturns for a broad segment of the population," he affirms. - Seth Maxon

Photo by Beth Rooney


Household Debt: Unemployment Culprit?

Amir SufiThe sky-high debt levels of American households may be responsible for the high unemployment rate that continues to weigh on the economy, according to research by Amir Sufi, professor of finance, and Atif Mian of the University of California - Berkeley Haas School of Business.

In a working paper that has drawn the attention of blogs published by the New York Times and Mother Jones, Sufi argues that depressed consumer spending is causing high unemployment, and spending has fallen because of deep household debt.

Titled "What Explains High Unemployment? The Aggregate Demand Channel," the paper analyzes employment data categorized by both county and industry, and by whether industries in those counties rely on local economies. Sufi finds that job losses have been most severe in counties where household debt has been deepest and where industries depend upon local economies. Without national or global demand to bolster local industries, consumer spending reductions from increased debt have forced those industries to cut jobs.

Sufi asserts that 65 percent of job losses from 2007 to 2009 - 4 million lost jobs - resulted from high levels of household debt and subsequent reduced household spending. - Seth Maxon

Photo by Beth Rooney


Boy Trouble

Marianne BertrandAbundant data show that an educational "gender gap" exists between boys and girls, with females significantly outperforming males. Articles in the Guardian and the Chronicle of Higher Education recently described one explanation for this disparity proposed by Marianne Bertrand, Chris P. Dialynas Professor of Economics and Richard N. Rosett Faculty Fellow. In a new paper, Bertrand argues that the home environment is more likely to influence boys' socio-emotional behavior and, subsequently, their educational outcomes than it does girls.

In "The Trouble with Boys: Social Influences and the Gender Gap in Disruptive Behavior," Bertrand and Jessica Pan, AB '05, MBA '10, PhD '10, of the National University of Singapore studied more than 20,000 American children whom they tracked for more than a decade. They found the gender gap particularly pronounced in children's tendency to "externalize problems" or "act out."

This gap widened when children came from what the authors term "broken families." Specifically, the "acting out" gender gap was nearly twice as large among children with single or teen mothers than among those from traditional two-parent homes. By eighth grade, boys from two-parent homes were 10 percent more likely to be suspended than girls, while boys from single-parent homes were 25 percent more likely to be suspended. By contrast, differences in school environments - such as teacher gender, teaching style, and peers - showed little or no impact on the gender gap.

The research showed that the amount of "parental inputs" - the positive interaction and warmth that parents display toward their children - also varied widely between traditional two-parent homes and broken families. Children from broken families received significantly less positive interaction and warmth than those in two-parent families. Across all family structures, boys showed stronger behavioral responses to these inputs than girls, so in families with lower-quality parental inputs, the behavioral gender gap widened further.

As a result, "the higher levels of parental investment in intact families may prevent more at-risk boys from developing conduct problems," Bertrand concludes. - Seth Maxon

Photo by Beth Rooney

Last Updated 10/16/12