In a recent blog post by the Federal Reserve Bank of New York, researchers discovered that the permanent effect of a job loss on workers’ earnings is 20 percent. The finding is important, obviously, because many consumer New York bankruptcy cases originate in debtors’ job losses. The New York Fed explored income shocks to households, and it compared their causes, such as promotion or job switching. Here is an explanation of its post and some of its findings.
Using Survey of Consumer Expectations data from 2014-2016, the researchers compared households’ beliefs about their future incomes against what actually came about. After excluding large outliers (presumably only households that gained more than a few times their incomes and not households that lost everything), the authors found that every four months the average household receives a negligible 0.5 percent earnings shock, but they range between -10 percent and 10 percent. That’s quite a bit of variance, and where there’s variance, there’s uncertainty for households.
The post’s authors then relied on other research finding that the effect of a permanent income shock on households’ predictions of future earnings are always the same no matter how far in the future one looks. Fortunately, it appears households on average receive a positive earnings shock of about 2.7 percent as opposed to a -1.0 percent temporary negative shock.
The researchers then wanted to explore the causes of households’ permanent income shocks and then compare them to the shock of losing a job. In doing so they found that a job loss corresponded to a -20 percent permanent income shock to households’ earnings. By comparison, some positive income shocks more than made up for the job loss, but others did not. Regular raises and raises based on job performance helped households less than a job loss hurt. Promotions exceeded job losses, and switching jobs is worth the opposite of losing two jobs—an income gain of about 40 percent.
The New York Fed’s blog post is here.
Although it wasn’t clear how the New York Fed distinguished permanent from temporary income shocks, the findings nevertheless inform us that job losses can result in serious permanent losses in income, which can be offset by job gains. Not everyone who transitions from employed to unemployed does so involuntarily, but for those who do it can become impossible to keep up with regular debt payments. If you recently suffered a “permanent negative income shock” then talking to an experienced New York bankruptcy lawyer can help you assess your options.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.
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