, How Do Career Disruptions Affect Elite White-Collar Workers?, The Nzuchi News Forbes

How Do Career Disruptions Affect Elite White-Collar Workers?

, How Do Career Disruptions Affect Elite White-Collar Workers?, The Nzuchi News Forbes

At a time when the careers of many of us are in significant doubt due to the uncertain economic circumstances posed by Covid-19, the ability to successfully transition from job to job, or even career to career, is hugely important so that we avoid the kind of career interruptions that are so harmful to our long-term success.

New research from UC Berkeley, Haas School of Business explores the resilience of bank employees in the wake of the Lehman Brothers bankruptcy. The aim was to understand what impact an unanticipated shock had on the career paths of mobile and high-skilled labor.

“Workplace disruptions such as plant closures and corporate bankruptcies can have dramatic effects on individuals’ subsequent career outcomes,” the researchers explain. “Most of the evidence on career disruptions covers menial labor and relatively unskilled, low-wage workers, but are there analogous effects for high-skill, white-collar workers with fewer liquidity constraints?”

White-collar resilience

They use the Lehman Brothers bankruptcy both because it allows for an exploration of white-collar workers who are highly skilled, mobile, and relatively unconstrained, while it was also a highly notable and unanticipated event that affected not just Lehman Brothers but many other financial institutions.

The study analyzes the fortunes of 14,536 employees at the bank as of January 2008, including their education, skills, and demographics. They then observed the employment status of those people again in January 2019. A control group was formulated using employees at other banks with similar business models to Lehman Brothers, such as Morgan Stanley and Goldman Sachs.

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The analysis reveals that Lehman employees were 2.17% more likely to suffer from at least one stretch of no reported employment for a period of at least six months between January 2008 and January 2019.

“This difference is statistically significant and economically meaningful, representing a 15% increase over the 14.3% unconditional likelihood of employment breaks at the control banks,” the authors explain.

Uneven split

Interestingly, however, this phenomenon was largely concentrated among senior employees. Indeed, the employees who were at the start of their careers were no more effected by the bankruptcy than their peers at other banks. The effect appeared to kick in for those at vice president level and above, with the impact growing as one became more senior, with those in the most senior roles 6.89% more likely to suffer periods of unemployment.

, How Do Career Disruptions Affect Elite White-Collar Workers?, The Nzuchi News Forbes

The researchers then looked to see if employees transitioned to different roles within the sector or left financial services altogether. The researchers reveal that at the control banks, the chances of remaining in the sector were around 55%, but those employed at Lehman were 3% less likely to stay in finance.

“Once again, the effect is strongest for senior most individuals: employees of Lehman Brothers in senior management positions (C-suite executives and heads of divisions or regional offices) are as much as 7.71% more likely to depart the financial services industry than their counterparts at the control banks, representing a 20% relative increase in industry switching over the baseline of 39% for this group,” the researchers explain.

Avoiding the blame

So what makes junior employees more resistant to any harmful consequences of the bankruptcy? While there is undoubtedly an element of more senior managers being tarred with the failures in culture and practice that saw the bank go under, the researchers also highlight a higher level of entrepreneurialism among senior managers in their life after Lehman.

Indeed, senior leaders at the bank were significantly more likely to start their own venture after leaving than their peers at other banks. As before, while this was true for employees at all levels, it was especially so as employees climbed the hierarchy.

Of course, the ability and desire to form a new business may be driven in part by the lack of opportunities elsewhere for people whose reputations have been so tarnished, but this is not something explored in the research. It’s also hard to gauge just how transferrable the findings are due to the unique nature of the Lehman bankruptcy and the impact it would have had on the reputation of those who worked there.

Nonetheless, the researchers believe their findings illustrate that white-collar workers don’t necessarily need to fear unexpected jolts to their careers, as the evidence from Lehman suggests that most bounce back pretty effectively.

“Our work adds to the income inequality literature by showcasing that high skilled workers are not only less likely to be displaced during times of financial distress but also face less severe labor market consequences even in the worst of circumstances — conditional on being displaced during poor market conditions,” they conclude.

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