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Is Unemployment Really Scarring? Effects of Unemployment Experiences on Wages

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Author Info
Arulampalam, Wiji () (Department of Economics, University of Warwick and IZA, Bonn)

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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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Publisher 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: 36 pages
Date of creation: Aug 2000
Date of revision:
Handle: RePEc:iza:izadps:dp189

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Related research
Keywords: Wage losses unemployment effects scarring re-entry wages

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Find related papers by JEL classification:
J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
J60 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - General

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. Stephen Nickell & Patricia Jones & Glenda Quintini, 2002. "A Picture of Job Insecurity Facing British Men," Economic Journal, Royal Economic Society, vol. 112(476), pages 1-27, January. [Downloadable!] (restricted)
    Other versions:
  2. 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.
    Other versions:
  3. René Böheim & Mark P. Taylor, 2000. "The Search for Success: Do the Unemployed find Stable Employment?," ILR working papers 052, Institute for Labour Research. [Downloadable!]
    Other versions:
  4. 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.
  5. 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. [Downloadable!] (restricted)
  6. 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. [Downloadable!] (restricted)
  7. Kletzer, Lori G, 1998. "Job Displacement," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 115-36, Winter. [Downloadable!] (restricted)
  8. Katharine G. Abraham & Henry S. Farber, 1987. "Job Duration, Seniority, and Earnings," NBER Working Papers 1819, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. 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. [Downloadable!] (restricted)
  10. Christian Dustmann & Costas Meghir, 2001. "Wages, experience and seniority," IFS Working Papers W01/01, Institute for Fiscal Studies. [Downloadable!]
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  11. Bruce C. Fallick, 1996. "A review of the recent empirical literature on displaced workers," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 50(1), pages 5-16, October.
  12. 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. [Downloadable!]
  13. 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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  14. Altonji, Joseph G & Shakotko, Robert A, 1987. "Do Wages Rise with Job Seniority?," Review of Economic Studies, Blackwell Publishing, vol. 54(3), pages 437-59, July. [Downloadable!] (restricted)
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  15. Topel, Robert H, 1991. "Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 145-76, February. [Downloadable!] (restricted)
    Other versions:
  16. 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)
  17. Arulampalam, Wiji & Booth, Alison L & Taylor, Mark P, 2000. "Unemployment Persistence," Oxford Economic Papers, Oxford University Press, vol. 52(1), pages 24-50, January.
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  18. Bruce C. Fallick, 1995. "A review of the recent empirical literature on displaced workers," Finance and Economics Discussion Series 95-14, Board of Governors of the Federal Reserve System (U.S.).
Full references

Cited by:
(explanations, 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. Nordström Skans, Oskar, 2004. "Scarring effects of the first labour market experience: A sibling based analysis," Working Paper Series 2004:14, IFAU - Institute for Labour Market Policy Evaluation. [Downloadable!]
  2. Alan Manning & Joanna Swaffield, 2005. "The Gender Gap in Early Career Wage Growth," CEP Discussion Papers dp0700, Centre for Economic Performance, LSE. [Downloadable!]
    Other versions:
  3. Getinet Astatike Haile, 2004. "Re-employment hazard of displaced German workers: evidence from the GSOEP," Working Papers 000284, Lancaster University Management School, Economics Department. [Downloadable!]
  4. Vollkommer, Dieter, 2002. "Regionalization of active labour market policies - an aggregat impact analysis," ERSA conference papers ersa02p255, European Regional Science Association. [Downloadable!]
  5. repec:ese:iserwp: is not listed on IDEAS
  6. Paul Gregg & Emma Tominey, 2004. "The Wage Scar from Youth Unemployment," The Centre for Market and Public Organisation 04/097, Department of Economics, University of Bristol, UK. [Downloadable!]
  7. Alison L. Booth & Marco Francesconi & Jeff Frank, 2002. "Temporary Jobs: Stepping Stones Or Dead Ends?," Economic Journal, Royal Economic Society, vol. 112(480), pages F189-F213, June. [Downloadable!] (restricted)
    Other versions:
  8. Nick Carroll, 2004. "Explaining Unemployment Duration in Australia," Discussion Papers 483, Centre for Economic Policy Research, Research School of Social Sciences, Australian National University. [Downloadable!]
    Other versions:
  9. D’Addio, Anna Cristina & De Greef, Isabelle & Rosholm, Michael, 2002. "Assessing Unemployment Traps in Belgium Using Panel Data Sample Selection Models," IZA Discussion Papers 669, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  10. Pieter Serneels, 2004. "Explaining Non-Negative Duration Dependence Among the Unemployed," Development and Comp Systems 0409013, EconWPA. [Downloadable!]
  11. Ken Clark & Joanne Lindley, 2006. "Immigrant Labour Market Assimilation and Arrival Effects: Evidence from the UK Labour Force Survey," IZA Discussion Papers 2228, Institute for the Study of Labor (IZA). [Downloadable!]
  12. Ken Clark & Joanne Kathryn Lindley, 2005. "Immigrant Labour Market Assimilation and Arrival Effects: Evidence from the Labour Force Survey," Working Papers 2005004, The University of Sheffield, Department of Economics, revised Jan 2005. [Downloadable!]
  13. Claudio Lupi & Patrizia Ordine, 2002. "Unemployment scarring in high unemployment regions," Economics Bulletin, Economics Bulletin, vol. 10, pages 1-8. [Downloadable!]
  14. René Böheim & Mark P Taylor, 2002. "Job search methods, intensity and success in Britain in the 1990s," Economics working papers 2002-06, Department of Economics, Johannes Kepler University Linz, Austria. [Downloadable!]
    Other versions:
  15. Raaum , Oddbjørn & Røed, Knut, 2003. "Do Business Cycle Conditions at the Time of Labour Market Entry Affect Future Unemployment?," Memorandum 12/2002, Oslo University, Department of Economics. [Downloadable!]
  16. Ohlsson, Henry & Storrie, Donald, 2007. "Long term effects of public policy for displaced workers in Sweden – shipyard workers in the West and miners in the North," Working Paper Series 2007:19, Uppsala University, Department of Economics. [Downloadable!]
  17. Nick Carroll, 2005. "Unemployment and Psychological Well-Being," Discussion Papers 492, Centre for Economic Policy Research, Research School of Social Sciences, Australian National University. [Downloadable!]
    Other versions:
  18. Dragana Djurdjevic, 2003. "Unemployment and under-employment: the case of Switzerland," University of St. Gallen Department of Economics working paper series 2003 2003-18, Department of Economics, University of St. Gallen. [Downloadable!]
    Other versions:
  19. José Ignacio García Pérez & Yolanda Rebollo Sanz, 2004. "Wage changes through job mobility in Europe: A multinomial endogenous switching approach," Economic Working Papers at Centro de Estudios Andaluces E2004/70, Centro de Estudios Andaluces. [Downloadable!]
    Other versions:
  20. Åslund, Olof & Rooth, Dan-Olof, 2003. "Do when and where matter? Initial labor market conditions and immigrant earnings," Working Paper Series 2003:7, IFAU - Institute for Labour Market Policy Evaluation. [Downloadable!]
  21. Carlos Carrillo Tudela, 2004. "Recruitment Policy When Firms Observe Workers' Employment Status: an Equilibrium Search Approach," Economics Discussion Papers 584, University of Essex, Department of Economics. [Downloadable!]
  22. Arulampalam, Wiji, 2002. "State Dependence in Unemployment Incidence: Evidence for British Men Revisited," IZA Discussion Papers 630, Institute for the Study of Labor (IZA). [Downloadable!]
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