Economic Consequences of The Great Recession: Evidence From The Panel Study of Income Dynamics
The 2007-09 recession was the most severe economic downturn of the post-World War II era. The nation’s output (GDP) fell 8 percent below trend between the fourth quarter of 2007 and mid-2009, and the unemployment rate doubled to over 9 percent. On average, households lost one-quarter of their wealth between the middle of 2007 and early 2009, and a third of those losses were in home equity. The total magnitude of the economic losses can be estimated with some precision from aggregate economic statistics, such as the national accounts and the flow of funds accounts. In the immediate aftermath of the recession, however, we knew much less about the distribution of those losses across the general population. Information from more detailed surveys about changes in the economic circumstance of households is now becoming available.
This paper uses information from the 2009 and earlier waves of the Panel Study on Income Dynamics (PSID) to investigate the distribution of wealth and job losses during the recession for different segments of the population. In the following section, we summarize some of the estimates of wealth and employment change from the survey and compare them to the aggregate measures to evaluate the extent to which the survey captures the general characteristics of the recession. The second section uses the panel dimension of the survey to explore the effects of the recession on patterns of job change. For example, changes in individuals’ economic circumstances are known to influence their retirement decisions. A weakening of the job market, which occurred between 2007 and 2009, encourages workers to retire at an earlier age than they had previously planned. On the other hand, losses of wealth from the associated fall in asset prices might encourage workers to delay retirement. The existence of data on large wealth changes between 2007 and 2009 at the individual household level offers a unique opportunity to evaluate these two offsetting responses.