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The Matthew effect of unemployment: how does it affect wages in Belgium

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Author Info

  • Amynah Vanessa Gangji
  • Robert Plasman

Abstract

Better understand the consequences of unemployment in terms of labour market opportunities as well as psychological well-being is of primary importance for any policies aimed at reducing unemployment. One way by which unemployment may impact on future labour market outcomes is through a reduction of subsequent earnings. This study therefore investigates the effects of the incidence and duration of unemployment on re-entry wages in Belgium using the Panel Study on Belgian Households for the period 1994-2002. The methodology used is based on a fixed effects model controlling for unobserved heterogeneity and sample selection bias. Results suggest that unemployment most often has a detrimental effect in terms of future labour market prospects. In other words, it can hardly be seen as an investment period allowing the unemployed to find a better match afterwards. The unemployment penalty may vanish if the unemployed find a stable job. However they are most often characterized by smaller average number of tenure years than individuals who did not go through such an experience. Consequently there is a risk that individuals having experienced unemployment will never be able to eliminate the wage penalty if they do not enter into stable job. Finally, we have found robust evidence that the wage penalty increases as the unemployment spell lengthens. This result is particularly alarming given the high proportion of long term unemployment in Belgium. These conclusions imply that unemployment costs go beyond the simple loss of income and human capital associated with job loss. This implies a substantial leeway for public intervention.

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Bibliographic Info

Paper provided by ULB -- Universite Libre de Bruxelles in its series DULBEA Working Papers with number 07-19.RS.

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Length: 43 p.
Date of creation: Oct 2007
Date of revision:
Publication status: Published by: DULBEA - Université libre de Bruxelles, Bruxelles
Handle: RePEc:dul:wpaper:07-19rs

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Keywords: unemployment incidence and duration; wage penalty; fixed effects model; sample selection bias.;

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References

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Citations

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Cited by:
  1. Bart COCKX & Matteo PICCHIO, 2011. "Scarring Effects of Remaining Unemployed for Long-Term Unemployed School-Leavers," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2011032, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  2. Benoît Mahy & François Rycx & Mélanie Volral, 2008. "L'influence de la dispersion salariale sur la performance des grandes entreprises belges," ULB Institutional Repository 2013/13474, ULB -- Universite Libre de Bruxelles.
  3. Caroline Gerschlager, 2008. "Foolishness and identity: Amartya Sen and Adam Smith," DULBEA Working Papers 08-03.RS, ULB -- Universite Libre de Bruxelles.
  4. Hassan Ayoub & Jérôme Creel & Etienne Farvaque, 2008. "Détermination du niveau des prix et finances: le cas du Liban 1965-2005," DULBEA Working Papers 08-10.RS, ULB -- Universite Libre de Bruxelles.
  5. Pierre-Guillaume Méon & Ariane Szafarz, 2008. "Labor market discrimination as an agency cost," DULBEA Working Papers 08-19.RS, ULB -- Universite Libre de Bruxelles.
  6. Sile Padraigin O'Dorchai, 2008. "Pay inequality in 25 European countries," DULBEA Working Papers 08-06rs, ULB -- Universite Libre de Bruxelles.
  7. Bernal, Oscar & Oosterlinck, Kim & Szafarz, Ariane, 2010. "Observing bailout expectations during a total eclipse of the sun," Journal of International Money and Finance, Elsevier, vol. 29(7), pages 1193-1205, November.
  8. Olivier Debande & Jean Luc De Meulemeester, 2008. "Quality and variety competition in higher education," DULBEA Working Papers 08-12.RS, ULB -- Universite Libre de Bruxelles.
  9. Charles Plaigin, 2009. "Exploratory study on the presence of cultural and institutional growth spillovers," DULBEA Working Papers 09-03.RS, ULB -- Universite Libre de Bruxelles.
  10. Ariane Szafarz, 2007. "Hiring people-like-yourself: a representation of discrimination on the job market," Working Papers CEB 07-021.RS, ULB -- Universite Libre de Bruxelles.
  11. Abdeslam Marfouk, 2008. "The African brain drain: scope and determinants," DULBEA Working Papers 08-07.RS, ULB -- Universite Libre de Bruxelles.

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