Can the short & long term personal consequences of unemployment be counteracted

[Wesley_Clark]

I was reading this article today

How a New Jobless Era Will Transform America

But in fact a whole generation of young adults is likely to see its life chances permanently diminished by this recession. Lisa Kahn, an economist at Yale, has studied the impact of recessions on the lifetime earnings of young workers. In one recent study, she followed the career paths of white men who graduated from college between 1979 and 1989. She found that, all else equal, for every one-percentage-point increase in the national unemployment rate, the starting income of new graduates fell by as much as 7 percent; the unluckiest graduates of the decade, who emerged into the teeth of the 1981–82 recession, made roughly 25 percent less in their first year than graduates who stepped into boom times.

But what’s truly remarkable is the persistence of the earnings gap. Five, 10, 15 years after graduation, after untold promotions and career changes spanning booms and busts, the unlucky graduates never closed the gap. Seventeen years after graduation, those who had entered the workforce during inhospitable times were still earning 10 percent less on average than those who had emerged into a more bountiful climate. When you add up all the earnings losses over the years, Kahn says, it’s as if the lucky graduates had been given a gift of about $100,000, adjusted for inflation, immediately upon graduation—or, alternatively, as if the unlucky ones had been saddled with a debt of the same size.

…

Examining national longitudinal data, Mossakowski has found that people who were unemployed for long periods in their teens or early 20s are far more likely to develop a habit of heavy drinking (five or more drinks in one sitting) by the time they approach middle age. They are also more likely to develop depressive symptoms. Prior drinking behavior and psychological history do not explain these problems—they result from unemployment itself. And the problems are not limited to those who never find steady work; they show up quite strongly as well in people who are later working regularly.

Forty years ago, Glen Elder, a sociologist at the University of North Carolina and a pioneer in the field of “life course” studies, found a pronounced diffidence in elderly men (though not women) who had suffered hardship as 20- and 30-somethings during the Depression. Decades later, unlike peers who had been largely spared in the 1930s, these men came across, he told me, as “beaten and withdrawn—lacking ambition, direction, confidence in themselves.” Today in Japan, according to the Japan Productivity Center for Socio-Economic Development, workers who began their careers during the “lost decade” of the 1990s and are now in their 30s make up six out of every 10 cases of depression, stress, and work-related mental disabilities reported by employers.

It claims that those who enter the job market during a bad period have problems for life that still remain after the economy straightens out and they are (more or less) securely back in the job market. They/we have problems with mental health, substance abuse, lower earnings, etc. that stay with us for life.

So what, if anything, can be done to prevent this slide (especially the psychological slide) downward? The concept of having problems with mental disability or alcoholism 20 years from now because I entered the job market in the great recession isn’t appealing to me.

At my old job I had a coworker who graduated during the Reagan recession, then around the early 1990s he was unemployed again for about a year (before he found the job where I met him). He reached a point where he was trying to make furniture out of old logs and sell them during that period from what he told me.

He has no kids, but he is in his early 50s and already had half a million saved in retirement accounts. He made a good income (about $25/hr) but nothing amazing to account for all his savings (ie he wasn’t making 200k a year). I wonder how much of that behavior (choosing to never having kids, saving everything he can) was due to his experiences with unemployment.

In between his pension, social security and retirement savings (which I assume will be closer to a million by the time he is 65), he should have an income of roughly $7000 a month in retirement. Which seems way too excessive. I don’t know if he is naturally a saver, or if he just has a deep rooted sense of financial insecurity that may have been created or aggravated by his bouts of unemployment.

My point in bringing that up is I am assuming that his experiences with unemployment altered his personality and attitudes for life. In his case good (more or less), but for others not so good.