Adding scars to wrinkles? Long-run effects of late-career job loss on retirement behavior and personal income Articles uri icon

publication date

  • April 2017

start page

  • 257

end page

  • 272

issue

  • 3

volume

  • 3

international standard serial number (ISSN)

  • 2054-4642

electronic international standard serial number (EISSN)

  • 2054-4650

abstract

  • Despite a growing interest in the effects of job loss, research on its consequences for older workers and their economic situation in retirement remains scant. Using 30 years of data from the German Socio-Economic Panel (SOEP), we examine the incidence and consequences of job loss at ages 50 to 64, following displaced workers for up to 10 years after displacement. We implement a difference-in-differences design and compare displaced workers with a composition-adjusted control group, focusing on changes in employment and a comprehensive measure of personal income that includes earnings and retirement benefits, as well as other public and private transfers. Our findings indicate that the risk of job loss is virtually identical for men and women, does not change substantially between workers' early 50s and early 60s, but is strongly stratified by level of education. Job loss has substantial and persistent negative effects on subsequent employment, with many older workers leaving work permanently after displacement. The financial consequences of late-career job loss are also severe and even more long-lasting. We estimate that cumulative losses over the first 10 years after displacement amount to 197% and 262% of average annual predisplacement income for men and women, respectively. Long-term losses are greater for workers displaced at ages 50 to 56 than for workers displaced at ages 57 to 64. More-educated workers carry a lower risk of job loss, but do not seem to be better protected against its financial consequences.