Is the Scarring from Unemployment Worse for Black Workers?

This paper compares how Black and White workers with stable jobs fare after an unemployment shock. Using administrative earnings data from the Continuous Work History Sample, the analysis compares the earnings trajectories of Black and White workers who are displaced during three recessions (1990-1991; 2000-2001; and 2008-2009) to the trajectories of non-displaced workers of the same race. 

The paper found that: 

• The displaced workers experience large and persistent declines in earnings relative to the counterfactual, regardless of race. 
• Relative to non-displaced workers of the same race, Black displaced workers experience a sharper percentage drop in earnings (“excess scarring”) immediately following displacement, but the same percentage drop in the long run. 
• However, Black workers still face substantial disadvantage, as even non-displaced Black workers experience slower earnings growth than White workers, a pattern that has not improved over time. 

The policy implications are: 

• The progressivity of Social Security benefits helps alleviate lifetime income shocks due to unemployment. 
• This progressivity is particularly important to Black workers because of their disproportionate risk of displacement and excess earnings losses immediately after displacement. 
• Similarly, having the early eligibility age remain at 62 is protective against the lower long-run employment rates of displaced workers.