Giving Compass' Take:

• Liz Hipple shares the ways in which the 2008 recession impacted workers in the long term and why we are likely to see the same pattern in a COVID-19 recession unless we change policies. 

• What role can funders play in supporting U.S. workers locally and nationally? 

• Read about what happens to charitable giving when the economy falters. 

Policymakers have asked—in some cases, demanded—that people stay home and businesses shutter as a public health crisis has unfolded across the United States, inducing an economic downturn. Despite positive developments in legislation passed last week, those policymakers have not put in place all the steps needed to protect workers and businesses from a full-scale recession that may cast a shadow for years to come. Given the likely scope and scale of this crisis and the current public policy response—which, from both a public health and economic perspective, has been insufficient—it is looking increasingly likely that the United States may be on the cusp of a severe economic recession.

What does the evidence from the Great Recession of 2007–2009 say about what an extended recession could mean for working people over the long term, especially young workers?

There is extensive research on the effects that economic downturns have on workers’ employment and earnings, not just during a recession but also lingering for years and decades afterward. In a new working paper, University of California, Berkeley economist Jesse Rothstein finds that workers who happen to be entering the labor market when there’s a recession have both permanently lower employment rates and lower earnings long after the recession has ended. These effects for recent entrants are even worse than for other members of the U.S. labor force who have been in it longer, as Rothstein explains in a column about the paper:

Workers from these cohorts saw their annual employment rates drop by 2 percentage points to 4 percentage points per year, relative to older workers in the same labor market. Those who were established in the workforce by the beginning of the recession—those who graduated college in 2005 and earlier—essentially returned to prerecession levels of employment by 2014. But those who entered after 2005 have not; their employment rates remain depressed even as the overall market has recovered.

Unfortunately, these effects are not temporary. Rothstein estimates that the permanent effects, or scarring, of the Great Recession on young workers will result in those individuals earning 2 percent less through the early years of their careers and will reduce their employment throughout the course of their career by about one week. While these amounts might sound small for one individual, aggregated across an entire generation, they represent a large loss of earnings and employment.

Another new working paper that explores the negative effects the Great Recession had on young workers in particular is by U.S. Census Bureau economist Kevin Rinz. He finds that from 2007 to 2017, millennials whose local labor markets had higher unemployment lost 13 percent in cumulative earnings, compared to 9 percent for Generation X and 7 percent for the baby-boom generation.

Research from the Great Recession indicates that the 2007–2009 downturn had deep and long-lasting negative economic impacts on people. The current downturn caused by our coronavirus-driven economic shutdown has already had dire impacts on workers, seen last week in the unprecedented jump in Unemployment Insurance claim filings. But as we have seen from the research above, recessions’ negative economic effects also linger for years afterward in depressed earnings and employment, and this current downturn may linger even longer due to underlying fragilities in the U.S. economy caused by historically high economic inequality and a porous social safety net.

Read the full article about the consequences of recessions for U.S. workers by Liz Hipple at Washington Center for Equitable Growth.