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Losing a Job in a Recession Costs $112K

NEW YORK (MainStreet) -- Losing a job is never easy, but a new study shows how much worse it can be in a tough economy.

Workers who become unemployed during a recession see their earnings drop by roughly $112,000 over the following 25 years compared with what it would have been, a total wage loss of roughly 19%, according to a report out this month from the Brookings Institution. By comparison, those who lose their jobs when the economy is growing suffer just more than half that wage loss, or about $65,000 over 25 years.

It's twice as costly to lose a job in a recession compared with in a normal economy.

Indeed, the difference between losing a job in a good and bad economy is notable particularly for people in the early stages of their careers. According to the Brookings data, workers in their 20s and 30s who became unemployed during a recession suffered an income loss of $133,376 during the following 25 years, compared with just $35,123 lost by those left without a job during a healthier economy, showing how much easier it is for this age group to bounce back when the economy is expanding.

The Brookings paper, which was put together by economists at Columbia University and the Chicago Booth School of Business, used Social Security data to track income changes over a 30-year period for workers who lost their jobs. The data sample includes only workers who had been employed for at least three years before their first period of unemployment and, in some cases, only tracks wage changes for 10 to 15 years, extrapolating the rest. The researchers analyzed this data based on whether the economy was growing or shrinking at the time each worker became unemployed.

The findings highlight just how long workers suffer the negative consequences of losing a job in a bad economy. On average, it takes at least 20 years for someone who lost a job in a recession to see their wages return to what they would have been had he or she lost a job in a growing economy.

Previous reports have hinted at this phenomenon, though to a lesser degree. One study, for example, found that students who graduated in a recession ended up earning just 70% of the wages they would have in normal times, due to the greater difficulty of landing a desirable, well-paying job.

While neither study focuses on the casualties of the most recent recession, the Brookings report does note that the wage loss this time around will likely be "severe and persistent."

In particular, the researchers point to 2011 Bureau of Labor Statistics data that show only half of workers who lost their jobs between 2007 and 2009 after having been employed for at least three years have since found work, and of those who have, one-third say they have taken a pay cut of at least 20%.

The recession may be over, but its repercussions may have only just begun.

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