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The Long-Term Effects of Youth Unemployment

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  • Thomas A. Mroz
  • Timothy H. Savage

Abstract

Using NLSY data, we examine the long-term effects of youth unemployment on later labor market outcomes. Involuntary unemployment may yield suboptimal investments in human capital in the short run. A theoretical model of dynamic human capital investment predicts a rational “catch-up” response. Using semiparametric techniques to control for the endogeneity of prior behavior, our estimates provide strong evidence of this response. We also find evidence of persistence in unemployment. Combining our semiparametric estimates with a dynamic approximation to the lifecycle, we find that unemployment experienced as long ago as ten years continues to affect earnings adversely despite the catch-up response.

Suggested Citation

  • Thomas A. Mroz & Timothy H. Savage, 2006. "The Long-Term Effects of Youth Unemployment," Journal of Human Resources, University of Wisconsin Press, vol. 41(2).
  • Handle: RePEc:uwp:jhriss:v:41:y:2006:i:2:p259-293
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    References listed on IDEAS

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    6. Heckman, James J & Borjas, George J, 1980. "Does Unemployment Cause Future Unemployment? Definitions, Questions and Answers from a Continuous Time Model of Heterogeneity and State Dependence," Economica, London School of Economics and Political Science, vol. 47(187), pages 247-283, August.
    7. Michael, Robert T & Tuma, Nancy Brandon, 1984. "Youth Employment: Does Life Begin at 16?," Journal of Labor Economics, University of Chicago Press, vol. 2(4), pages 464-476, October.
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