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Scars of This Recession Will Linger for Years

Despite its lingering ills, the U.S. economy expanded at a solid clip in the final months of 2009 and likely will continue growing in the new year. Even the double-digit unemployment rate is expected to improve by the end of 2010. One day soon, the recession will be officially declared over.

That will be welcome news, but it won't end the pain.

The aftershocks from deep recessions reverberate for years, even decades, and take an enduring toll on everything from government finances to countless upended individual lives.

"People assume once the recession is over, people go back to work. They don't quite get the long-lasting impact," says economist John Irons of the Economic Policy Institute in Washington, D.C.

What Irons calls "economic scarring" will long serve as a reminder of the 2007-09 recession.

Millions of workers who've lost their hold on the labor market are seeing their incomes reset to a permanently lower level. Young people who entered the workforce this year can expect to earn substantially less during their careers than those who start work during booms.

As state and local governments slash spending, some children will lose educational opportunities, including the chance to attend college.

Others will be weakened by untreated physical and mental illnesses.

"We live in a big, dynamic economy, so some people will reinvent themselves. But a significant minority will have permanent, lasting earnings loss. They'll have to relocate, and some will see real turmoil," says economist Lori Kletzer, an expert on the labor market at the University of California-Santa Cruz.

For millions of Americans, the recession will bend the trajectory of their lives in unexpected ways.

Today, 15.4 million workers are jobless, more than twice as many as in December 2007.

To get work, many will face unwelcome moves to distant states or be forced to abandon preferred careers.

Some will be dealt blows from which they will never truly recover, the recession's impact hardening like a footprint in wet cement.

"I've been out of work for such a long time. It wouldn't make a dime's bit of difference what I did," says Thomas O'Brien, 56, of Casper, Wyo., who hasn't been employed full time since the early 1980s.

Children of recession

O'Brien, who worked a series of short-lived jobs before the recession and has survived in part on income from a family ranch, is an extreme case. But for many put out of work by this recession, the scars will be visible for years.

Harvard University's Kenneth Rogoff studied 14 postwar financial crises and found that, on average, public debt in the affected country rose 86 percent after three years.

The ballooning U.S. debt will cost taxpayers tens of billions of dollars more each year in annual interest payments.

Other marks will be equally real, though obscured: investments that aren't made, businesses not created, stunted lives that could have blossomed more fully.

"It's going to be tough and have profound, lasting effects," says Rogoff, former chief economist of the International Monetary Fund.

The best way to see what lies ahead is to look back.

Before the current downturn, the most severe postwar economic decline was the double-dip recession of the early 1980s.

As the Federal Reserve sought to choke off inflation by raising interest rates to double digits, the economy plunged in the second quarter of 1980, rebounded late in the year, then fell hard again in late 1981.

Sustained growth didn't resume until early 1983.

On Chicago's South Side, 15-year-old Chris Johnson watched his mother struggle to save the family's neighborhood sandwich shop as that recession took hold.

As she spent ever more time at the business, there was less attention for Chris and his older brother, Warren.

"It just created tension in the house because she was gone when me and my brother were young teenagers," Johnson recalls. "We were at that age when we needed more guidance and supervision, especially on the South Side of Chicago."

Johnson, a good student who was close to his mom, stayed out of trouble. But his brother began drinking and smoking marijuana before eventually turning to cocaine, Johnson says.

The sandwich shop closed in 1981, and the Johnsons moved to Houston.

Johnson's father found work in construction while the teenager began working nights at a fast-food outlet to help with bills.

His mother, Rosa, weakened by long hours of work, became disabled with fibromyalgia. The family never really recovered from the early 1980s downturn.

Johnson's father, John, cycled through three different jobs in six months, as the medical expenses for Rosa's illness mounted.

Times got so hard that the family began selling its possessions one by one, in a rolling garage sale that lasted eight months.

In 1984, Chris, then 17, finally escaped the bleak labor market by joining the military with a parental waiver.

"It was a tremendous impact . . . to see how everything my parents worked for could be lost," he says.

Even so, Johnson went on to graduate from college in his mid-20s, after leaving the Army. He pursued a career in the high-tech industry.

The resilience he developed in the early 1980s served him well, he says, allowing him to bounce back and land a good job after a 2007 layoff.

Many children of recessions don't do as well.

Those whose families fell into poverty during the early 1980s paid the price throughout their adult lives, says First Focus, a bipartisan advocacy group in Washington, D.C. They typically received less education, were less healthy and had less consistent work histories.

The results showed in their paychecks.

In 2001, adults who had been 10-14 in 1979 and then fell into poverty had a median family income of $44,000, compared with $64,000 for those who stayed out of poverty during the early 1980s.

Slipping back

With the Fed expecting the unemployment rate to remain as high as 7.5 percent through 2012, many Americans will search in vain for new work.

Of those laid off, few will regain their previous standard of living. Even 15 or 20 years after being laid off, workers who lost their jobs during the recession of the early 1980s still earned a median 20 percent less than their counterparts who worked throughout the downturn, according to research by economists Till von Wachter, Jae Song and Joyce Manchester.

James Morris, who was laid off twice in three years, figures the early-1980s recession set his career back a decade. At the time, Morris was earning $9 an hour on an assembly line at heavy equipment maker Caterpillar in Peoria, Ill. That was good money in those days for a 24-year-old without a college degree. Morris was scheduled for a four-year apprenticeship program that was a pipeline to better-paying white-collar work.

"I've always been an overachiever. My dad was a Cat career person, and he taught me an honest day's dollar for an honest day's work," Morris says.

After his second layoff in 1982, Morris and his then-wife, Kay, survived on the income from her administrative job and his part-time farming and construction earnings. The couple eschewed luxuries, tracking expenses on a daily basis and heating their home with a wood-burning stove.

"I went from $9 an hour to $5 an hour," he said.

Morris eventually was rehired at Caterpillar in 1989 and made it into management in 1996 - 10 years later than he'd expected. Along with the stiff financial hit, the recession also cost him so many years toward his pension that he's had to delay retirement by about seven years.

Those with the bad luck to enter the labor force during a recession can get blown far off their intended course.

Bobby Finken graduated from Oklahoma State in the summer of 1982 with a degree in international management, expecting to start work immediately at Schlumberger, the oil services company. But with the oil industry in free fall, his job offer was suddenly withdrawn. "I shouldn't say I was out of work; I was never in work," he says.

Instead of a salaried position with good benefits at a multinational corporation, Finken ended up in a commission-only sales job. He moved to Dallas and peddled storm windows and storm doors, a far cry from his plans to travel the world.

Finken, who is still a salesman, spent 27 years in Dallas, and today, at age 50, the married father of three says he's content. "The question is: Where would that (other) career have taken me?" Finken says.

New doors open

Amid the hard times of the early 1980s, some people carved opportunity from adversity.

In California, a general contractor named Fred Schweiger saw his business idled by punishingly high interest rates. To keep his crew together, he used his savings to pay them to clear 35 acres of wooded hillside in Napa County. His third try for a loan to start a vineyard there was approved, and almost 30 years later, Schweiger Vineyards in St. Helena, Calif., ships 5,000 cases of wine each year.

The early 1980s, Schweiger, 67, says today, "became a situation where something bad turned good."

Likewise, the recession pushed civil engineer Dave Holman to take a chance on working overseas after the Escondido, Calif., firm he worked for cut his salary by one-third.

The work on bridge and highway projects in the United Arab Emirates was interesting, and as an expatriate, Holman, then 42, received a tax-free salary and plenty of benefits, including a company car and three-bedroom apartment. By the time he and his wife, Barbra, returned to the USA in 1986, their recession-battered finances had healed. Holman spent the next 18 years as executive director of the California Cement Promotion Council.

"After being down and out in 1982, the remainder of my life and career has been nothing but great," he says via e-mail.

Americans who prospered despite those dark days say their experiences offer lessons for people struggling today. Jay Herson, a cancer researcher at the University of Texas M.D. Anderson Cancer Center in Houston, took advantage of the recession-era glut of office space to open a small consulting company. He started in March 1983 as a one-man shop and eventually sold the business 18 years later, when it had annual revenue of $5.5 million.

Now 67, he has this advice: "Resist acting like the victim. . . . Think positively, and don't be afraid to take risks."

For some, the early 1980s recession was bittersweet.

When the 1981 slump began, Mark York was working for the Army Corps of Engineers controlling the flow of barges along the Monongahela River in Pittsburgh. Just two years out of high school, he was making good "middle-class wages, living well," he says.

He lost that job as the recession took hold. Pittsburgh's steel mills were beginning their long slide, leaving few opportunities for young men with no education beyond high school. So York spent his last savings on a train ticket to Texas, where he found signs reading "Yankees go home" and work at a local Coca-Cola bottling facility.

He eventually moved on to jobs at Union Pacific Railroad and American Airlines, where he now works as a load master. The intervening years have seen a lot of hard work and "what ifs."

York, 49, has never become totally comfortable in Texas and says he still thinks of Pennsylvania as home. But one good thing came of his cross-country move. At a party the night he arrived, he met a young woman named Teresa. Seven months later, they were married. That was 28 years ago.

"Nobody wants to be uprooted from where they were born and raised," York says. "But when one door closes, another opens."

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