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The Wage Scar from Youth Unemployment

Author

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  • Paul Gregg
  • Emma Tominey

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Abstract

In this paper we utilise the National Child Development Survey to analyse the impact of unemployment during youth upon the wage of individuals up to twenty years later. We find a large and significant wage penalty, even after controlling for educational achievement, region of residence and a wealth of family and individual specific characteristics. We employ an instrumental variables technique to ensure that our results are not driven unobserved individual heterogeneity. Our estimates are robust to the test, indicating that the relationship estimated between youth unemployment and the wage in later life is a causal relationship. Our results suggest a scar from early unemployment in the magnitude of 12% to 15% at age 42. However, this penalty is lower, at 8% to 10%, if individuals avoid repeat incidence of unemployment.

Suggested Citation

  • 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.
  • Handle: RePEc:bri:cmpowp:04/097
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    File URL: http://www.bris.ac.uk/Depts/CMPO/workingpapers/wp97.pdf
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    References listed on IDEAS

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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. An ageing workforce
      by chris dillow in Stumbling and Mumbling on 2010-02-17 17:52:52
    2. State of economy for less-educated young people compounds growing Opportunity Gap
      by socialcapital in Social Capital Blog on 2013-05-06 19:55:44
    3. Recession & work ethics
      by chris dillow in Stumbling and Mumbling on 2013-06-18 18:27:00

    Citations

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    Cited by:

    1. L.Guarcello & M. Manacorda & F. Rosati & J. Fares & S.Lyon & C. Valdivia, 2005. "School-to-Work Transitions in Sub-Saharan Africa: An overview," UCW Working Paper 15, Understanding Children's Work (UCW Programme).
    2. Thomas Barnay, 2016. "Health, work and working conditions: a review of the European economic literature," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 17(6), pages 693-709, July.
    3. Gail Pacheco, 2012. "The cost of poor transitions for youth," Working Papers 2012-09, Auckland University of Technology, Department of Economics.
    4. Grimshaw, Damian., 2014. "At work but earning less : trends in decent pay and minimum wages for young people," ILO Working Papers 994862833402676, International Labour Organization.
    5. Morne Oosthuizen, 2013. "Maximising South Africa's Demographic Dividend," Working Papers 13157, University of Cape Town, Development Policy Research Unit.
    6. Gail Pacheco & Jessica Dye, 2013. "Estimating the Cost of Youth Disengagement in New Zealand," Working Papers 2013-04, Auckland University of Technology, Department of Economics.
    7. repec:ilo:ilowps:486283 is not listed on IDEAS
    8. Marina Bassi & Matías Busso & Sergio Urzúa & Jaime Vargas, 2012. "Disconnected: Skills, Education, and Employment in Latin America," IDB Publications (Books), Inter-American Development Bank, number 79504, February.
    9. Yekaterina Chzhen & Dominic Richardson, 2014. "Young People (not) in the Labour Market in Rich Countries during the Great Recession," Papers inwopa726, Innocenti Working Papers.
    10. Fares, Jean & Tiongson, Erwin R., 2007. "Youth unemployment, labor market transitions, and scarring : evidence from Bosnia and Herzegovina, 2001-04," Policy Research Working Paper Series 4183, The World Bank.
    11. Amynah Vanessa Gangji & Robert Plasman, 2007. "The Matthew effect of unemployment: how does it affect wages in Belgium," DULBEA Working Papers 07-19.RS, ULB -- Universite Libre de Bruxelles.
    12. Niall O’Higgins, 2004. "Recent Trends in Youth Labour Markets and Youth Employment Policy in Europe and Central Asia," CELPE Discussion Papers 85, CELPE - Centre of Labour Economics and Economic Policy, University of Salerno, Italy.
    13. repec:eee:joecag:v:5:y:2015:i:c:p:14-22 is not listed on IDEAS
    14. Gartell, Marie, 2009. "Unemployment and subsequent earnings for Swedish college graduates: a study of scarring effects," Working Paper Series 2009:10, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    15. Gregg, Paul & Tominey, Emma, 2005. "The wage scar from male youth unemployment," Labour Economics, Elsevier, vol. 12(4), pages 487-509, August.
    16. repec:idb:idbbks:427 is not listed on IDEAS

    More about this item

    Keywords

    youth unemployment; scarring; cost of job loss;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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