No Stratified Effect of Unemployment on Incomes: How the Market, State, and Household Compensate for Income Loss in the United Kingdom and Switzerland

Abstract

Unemployment is a critical life event that may affect the income trajectories of displaced workers very unequally. It may lead to cumulative disadvantage and hit vulnerable groups hardest. Alternatively, it may level the playing field because higher classes have more to lose. We analyse heterogeneous effects of unemployment on income for the United Kingdom and Switzerland, using two household panels—Understanding Society 2009–2017 and the Swiss Household Panel 1999–2017—and distinguishing two sources of income: from the labour market and welfare state, at the level of individuals and households. We use a difference-in-differences design by matching unemployed to employed workers and estimating fixed-effects regressions. Results show that individual labour income drops in the 2 years after an unemployment spell by 20 and 25 per cent in Switzerland and by 25 and 55 per cent in the United Kingdom. Welfare state transfers reduce these losses by half in Switzerland, but have only a marginal impact in the United Kingdom. In both countries, income losses do not differ much across social classes. If anything, they are smaller in the working class. We thus find no evidence for cumulative disadvantage. The middle classes face a lower risk of becoming unemployed, but are not less vulnerable to its consequences.

Insured Privately? Wealth Stratification of Job Loss in the UK

“…If not compensated through these private or public mechanisms, earnings losses following a job loss might lead to reductions in household income and affect living standards and satisfaction. In the year of job loss, individuals are estimated to lose around 5-30% of their household income across OECD countries and around 20% in the UK (see, among others, Di Nallo & Oesch, 2021;Ehlert, 2012;Seim, 2019). Evidence also shows significant declines in consumption following a job loss in Canada, Denmark, and the US (Andersen et al, 2021;Browning & Crossley, 2008;Ganong & Noel, 2019).…”

How much his or her job loss influences fertility: A couple approach

“…The existence of this "floor effect" correlates with the level of expectedness and normativity of disruptive events (Aquino et al, 2022). In contrast, intermediate-income couples could be worse off compared with the other couples because their economic losses would be tangible and their safety net-consisting of savings and state transfers (Di Nallo & Oesch, 2021;Ehlert, 2012)-could be inadequate to plan a birth.…”

“…A job displacement belongs to the domain of “trigger events,” which disrupt the life course and might lead to the accumulation of disadvantage, or “scarring effect” (DiPrete & McManus, 2000; Gangl, 2006). Beyond the well‐documented negative impact of job loss on income (Brand, 2015; Di Nallo & Oesch, 2021; Gangl, 2006), a job loss has been empirically linked to lower re‐employment chances and downward quality of jobs (Brandt & Hank, 2014; Gangl, 2004; Manzoni & Mooi‐Reci, 2020).…”

“…Therefore, the impact on their fertility might be negligible. On the contrary, low‐income couples might face lower financial loss in absolute terms, but consequential in relative terms, with a big toll on their life quality (Di Nallo & Oesch, 2021). Also, low‐income families may be less vulnerable to the income fall associated with a job loss simply because they have “less to lose” (Aquino et al, 2022).…”

Doubly disadvantaged: Unemployment, young age, and electoral participation in the United Kingdom

“…These past experiences of unemployment are broadly addressed as ‘ unemployment scars ’, which may leave negative long‐term ‘scar effects’ 1 on several socio‐economic outcomes, beyond the negative short‐term consequences of unemployment (Arulampalam et al., 2001; Clark et al., 2001; Gangl, 2006). Belonging to the family of ‘ trigger events ’ that disrupt the life course and may lead to the accumulation of disadvantage (DiPrete, 2002; DiPrete & Eirich, 2006), the scar effects of unemployment have originally been documented in the labour market, such as lower re‐employment chances and income, and higher risk of further job loss (Brandt & Hank, 2014; Di Nallo & Oesch, 2021; Gangl, 2004; Luijkx & Wolbers, 2009; Mooi‐Reci & Ganzeboom, 2015). Afterwards, the scarring theoretical framework has been expanded to other socio‐economic domains, including family (Di Nallo et al., 2022; Goñalons‐Pons & Gangl, 2021) and health (Knabe & Rätzel, 2011; Mousteri et al., 2018).…”