Each year, even when the economy is growing, millions of people lose a job for reasons other than poor performance or misconduct. The ability of employers to quickly adjust the size of their workforces in response to changes in demand is generally considered a source of strength for the U.S. economy over the long term, because it prompts a shift of labor resources toward areas of higher productivity. Some people, however, bear substantial costs from employers’ flexibility—particularly during recessions, when many people lose jobs and new opportunities are relatively scarce.
This issue brief reviews the research on the short- and long-term effects of involuntary job loss for reasons other than poor performance or misconduct on people’s future employment and earnings. In light of the recession that began in December 2007 and CBO’s projection that, under current law, the unemployment rate will remain elevated for a number of years, the brief focuses on the effects of involuntary job loss during periods of weak economic activity. The brief also summarizes some of the government programs that help people who have lost their job.