People face a wide range of risks throughout their lifetime that can disrupt employment, reduce earnings, derail retirement planning, and impair economic well-being later in life. This paper measures the impact of health, employment, and marital status shocks on lifetime earnings. Using household survey data from the Survey of Income and Program Participation matched to administrative earnings records, we compared lifetime earnings for people who developed a health problem that limited the type or amount of work they could do, were laid off from their job, or became widowed, divorced, or separated with those who did not experience these shocks.
The paper found that:
- Employment shocks are fairly common, and disability shocks become much more common as people age. About one in five workers is laid off from their job over a four-year period, even when the job market is robust. About one in seven men and one in six women develop a work-limiting disability in their early 50s.
- People who eventually develop disabilities or lose their jobs generally have lower lifetime earnings even before these shocks occur than people who do not experience these shocks.
- Health and employment shocks have substantial and long-lasting impacts on earnings. Relative lifetime earnings rank falls by 5 percentile points a decade and a half after disability onset and by 3 percentile points a decade and a half after job loss.
The policy implications of the findings are:
- Strong safety nets are essential for people who experience health problems and job losses during their working years.
- Increased investment in workforce development programs, including retraining of displaced workers, might raise lifetime earnings for workers who have experienced job layoffs.