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The Effects of Unemployment on the Earnings of Young Australians

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Author Info
Matthew Gray

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Abstract

The high rates of youth unemployment experienced in a number of OECD economies has raised concerns about the effect of this on subsequent earnings. Using the Australian Youth Survey (AYS) a longitudinal survey of Australian youth, we estimate the effects of unemployment on subsequent hourly and weekly earnings. The estimates suggest that, when unobserved heterogeneity is taken into account, it is only long histories of unemployment which have a negative effect on hourly wages. On the other hand, even relatively small amounts of unemployment history are associated with weekly earnings losses. The effects of unemployment on weekly earnings is shown to be mostly due to shorter working hours, with only a small part being due to lower hourly wages. These findings are consistent with the fact that Australia has binding minimum wages which limit the extent to which hourly wages can be reduced and so the impact of unemployment on earnings occurs through shorter working hours. Evidence is presented that this loss of working hours is involuntary and can therefore be counted as a cost of unemployment.

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Publisher Info
Paper provided by Centre for Economic Policy Research, Research School of Social Sciences, Australian National University in its series CEPR Discussion Papers with number 419.

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Length: 23 pages
Date of creation: Sep 2000
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Handle: RePEc:auu:dpaper:419

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Paul W. Miller, 1995. "The Australian Longitudinal Survey and the Australian Youth Survey," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 28(1), pages 123-129. [Downloadable!] (restricted)
  2. Jacobson, Louis S & LaLonde, Robert J & Sullivan, Daniel G, 1993. "Earnings Losses of Displaced Workers," American Economic Review, American Economic Association, vol. 83(4), pages 685-709, September. [Downloadable!] (restricted)
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  3. Vella, Francis, 1993. "Nonwage Benefits in a Simultaneous Model of Wages and Hours: Labor Supply Functions of Young Females," Journal of Labor Economics, University of Chicago Press, vol. 11(4), pages 704-23, October. [Downloadable!] (restricted)
  4. Simpson, Michael & Dawkins, Peter & Madden, Gary, 1997. "Casual Employment in Australia: Incidence and Determinants," Australian Economic Papers, Blackwell Publishing, vol. 36(69), pages 194-204, December.
  5. Stephen Knights & Mark Harris & Joanne Loundes, 2000. "Dynamic Relationships in the Australian Labour Market: Heterogeneity and State Dependence," Melbourne Institute Working Paper Series wp2000n06, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne. [Downloadable!]
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  6. Gibbons, Robert & Katz, Lawrence F, 1991. "Layoffs and Lemons," Journal of Labor Economics, University of Chicago Press, vol. 9(4), pages 351-80, October. [Downloadable!] (restricted)
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  7. LaLonde, Robert J, 1986. "Evaluating the Econometric Evaluations of Training Programs with Experimental Data," American Economic Review, American Economic Association, vol. 76(4), pages 604-20, September. [Downloadable!] (restricted)
  8. Lockwood, Ben, 1991. "Information Externalities in the Labour Market and the Duration of Unemployment," Review of Economic Studies, Blackwell Publishing, vol. 58(4), pages 733-53, July. [Downloadable!] (restricted)
  9. Denise J. Doiron, 1995. "Lay-Offs as Signals: The Canadian Evidence," Canadian Journal of Economics, Canadian Economics Association, vol. 28(4a), pages 899-913, November.
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  10. Blanchard, Olivier Jean & Diamond, Peter A, 1994. "Ranking, Unemployment Duration, and Wages," Review of Economic Studies, Blackwell Publishing, vol. 61(3), pages 417-34, July. [Downloadable!] (restricted)
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  11. Borland, Jeff & Suen, Anthony, 1994. "The Experience-Earnings Profile in Australia," The Economic Record, The Economic Society of Australia, vol. 70(208), pages 44-55, March.
  12. Preston, Alison, 1997. "Where Are We Now with Human Capital Theory in Australia?," The Economic Record, The Economic Society of Australia, vol. 73(220), pages 51-78, March.
  13. Baltagi, Badi H. & Boozer, Michael A., 1997. "Econometric Analysis of Panel Data," Econometric Theory, Cambridge University Press, vol. 13(05), pages 747-754, October. [Downloadable!]
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Cited by:
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  1. Bruce Chapman & Matthew Gray, 2004. "Youth Unemployment: Aggregate Incidence and Consequences for Individuals," Labor and Demography 0408001, EconWPA. [Downloadable!]
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  2. Amynah Gangji & Robert Plasman, 2007. "The Matthew effect of unemployment: how does it affect wages in Belgium," Working Papers DULBEA 07-19.RS, Université libre de Bruxelles, Department of Applied Economics (DULBEA). [Downloadable!]
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