Effect of Job Loss on Wealth Accumulation of Older Workers

In this study, we examine the impact of job displacement on wealth holdings of older
workers. Using data from the Health and Retirement Study, we measure the impact of job loss on
the total wealth and its subcomponents. We find that a typical worker experiences a persistent
reduction in his/her wealth balances at a rate of 8 percent six or more years post job loss. Wealth
shocks of this magnitude during the years leading up to retirement may jeopardize wealth
adequacy during retirement. In our assessment of wealth adequacy, we find that job displacement
can push more people into “near poverty”. We use the formulation of Love et al. (2007) to
compare household wealth to poverty by computing the ratio of household wealth to the actuarial
present value of poverty lines. We find that 11.1 percent of the displaced survey respondents
have poverty ratio between 1 and 1.5 as opposed to 7.8 percent of the not displaced survey
respondents.