RBA: job losses have long-term impacts on earnings

The RBA has released a new Bulletin report entitled “The Financial Cost of Job Loss in Australia”, which estimates that losing one’s job has long-term implications on one’s earning capacity:

Workers who lose a job tend to experience large and persistent earnings losses. On average, real earnings are around one-third lower in the year of job loss, and it takes at least four years for an individual’s annual earnings to recover. Earnings losses are particularly persistent following the loss of a long-term job. Workers who find new employment tend to work fewer hours at lower hourly rates of pay…

Graph 2 shows estimates of the effect of job loss on real earnings, relative to what would have been expected in the absence of job loss (see also Table A1). The results indicate that Australian workers who lose a job tend to experience large and persistent losses of real earnings. Real earnings are around one-third lower in the year of job loss, on average. Earnings recovery slowly; it takes at least four years for those who lost a job to be earning as much as if they had not lost a job. Overall, cumulative losses of real earnings are equivalent to around 50 per cent of a workers’ real earnings in one year, or a little under $40,000 for the average income earner in 2018/19. These estimates can be interpreted as the average effect of job loss on earnings; in practice, workers’ experiences differ significantly and include better and worse outcomes…