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Is Unemployment Really Scarring? Effects of Unemployment Experiences on Wages

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  • Arulampalam, Wiji

    ()
    (University of Warwick)

Abstract

This paper looks at the effects of unemployment on re-employment wage for men using the first seven waves of the British Household Panel Survey (BHPS) conducted over the period 1991- 1997. In particular, how the effect of an interruption changes over time, and whether the type of interruption itself matters or not for re-employment wage, are addressed. The issue of sample selection and unobserved heterogeneity are also addressed in the analyses. This study finds that, unemployment does have a scarring effect on individuals who experience it, in terms of earnings losses on re-employment jobs. In particular it finds that, an unemployed individual on returning to work will earn about 6% less than an otherwise equivalent individual who makes an employment to employment transition, during the first year of employment. This differential is estimated to increase to about 14% in the fourth year before starting to decline. In addition, the first spell of unemployment is estimated to have the largest effect with repeat incidences causing a further scarring. Separations due to redundancy are found to be less scarring relative to other causes. The worst affected were men aged over 45 with no educational qualifications. The study could not find any significant effects of unemployment duration on subsequent wages in addition to the incidence effect.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 189.

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Length: 37 pages
Date of creation: Aug 2000
Date of revision:
Publication status: published in: Economic Journal, 2001, 111 (475), F585-606; see IZA Reprints 155/03
Handle: RePEc:iza:izadps:dp189

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Keywords: re-entry wages; scarring; unemployment effects; Wage losses;

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References

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  1. Boheim, Rene & Taylor, Mark P., 2002. "The search for success: do the unemployed find stable employment?," Labour Economics, Elsevier, vol. 9(6), pages 717-735, December.
  2. Joseph G. Altonji & Nicolas Williams, 1997. "Do Wages Rise with Job Seniority? A Reassessment," NBER Working Papers 6010, National Bureau of Economic Research, Inc.
  3. Dustmann, Christian & Meghir, Costas, 1999. "Wages, Experience and Seniority," CEPR Discussion Papers 2077, C.E.P.R. Discussion Papers.
  4. Arulampalam, Wiji & Booth, Alison L & Taylor, Mark P, 2000. "Unemployment Persistence," Oxford Economic Papers, Oxford University Press, vol. 52(1), pages 24-50, January.
  5. Pissarides, Christopher A, 1992. "Loss of Skill during Unemployment and the Persistence of Employment Shocks," The Quarterly Journal of Economics, MIT Press, vol. 107(4), pages 1371-91, November.
  6. Altonji, Joseph G & Shakotko, Robert A, 1987. "Do Wages Rise with Job Seniority?," Review of Economic Studies, Wiley Blackwell, vol. 54(3), pages 437-59, July.
  7. Robert H. Topel, 1990. "Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority," NBER Working Papers 3294, National Bureau of Economic Research, Inc.
  8. Narendranathan, Wiji & Elias, Peter, 1993. "Influences of Past History on the Incidence of Youth Unemployment: Empirical Findings for the UK," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 55(2), pages 161-85, May.
  9. Stephen Nickell & Tracy Jones & Glenda Quintini, 2000. "A picture of job insecurity facing British men," LSE Research Online Documents on Economics 20141, London School of Economics and Political Science, LSE Library.
  10. Mark B. Stewart, 2002. "The Inter-related Dynamics of Unemployment and Low Pay," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 B2-4, International Conferences on Panel Data.
  11. Dolton, Peter & O'Neill, Donal, 1996. "Unemployment Duration and the Restart Effect: Some Experimental Evidence," Economic Journal, Royal Economic Society, vol. 106(435), pages 387-400, March.
  12. Bruce C. Fallick, 1996. "A review of the recent empirical literature on displaced workers," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 50(1), pages 5-16, October.
  13. Paull, G, 1997. "Dynamic Labour Market Behaviour in the British Household Panel Survey : The Effects of Recall Bias and Panel Attrition," Papers 10, Centre for Economic Performance & Institute of Economics.
  14. Louis S. Jacobson & Robert J. LaLonde & Daniel Sullivan, 1992. "Earnings Losses of Displaced Workers," Upjohn Working Papers and Journal Articles 92-11, W.E. Upjohn Institute for Employment Research.
  15. Lockwood, Ben, 1991. "Information Externalities in the Labour Market and the Duration of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 58(4), pages 733-53, July.
  16. Abraham, Katharine G & Farber, Henry S, 1987. "Job Duration, Seniority, and Earnings," American Economic Review, American Economic Association, vol. 77(3), pages 278-97, June.
  17. Lori G. Kletzer, 1998. "Job Displacement," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 115-136, Winter.
  18. Gregg, Paul & Wadsworth, Jonathan, 2000. "Mind the Gap, Please: The Changing Nature of Entry Jobs in Britain," Economica, London School of Economics and Political Science, vol. 67(268), pages 499-524, November.
  19. Stevens, Ann Huff, 1997. "Persistent Effects of Job Displacement: The Importance of Multiple Job Losses," Journal of Labor Economics, University of Chicago Press, vol. 15(1), pages 165-88, January.
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  1. The Cost of Recessions
    by Matthew E. Kahn in Environmental and Urban Economics on 2010-05-19 13:38:00
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