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Scarring Effects of Remaining Unemployed for Long-Term Unemployed School-Leavers

  • Bart Cockx
  • Matteo Picchio

This study investigates whether and to what extent further unemployment experience for youths who are already long-term unemployed imposes a penalty on subsequent labor market outcomes. We propose a flexible method for analyzing the effect on wages aside of transitions from unemployment and employment within a multivariate duration model that controls for selection on observables and unobservables. We find that prolonging unemployment drastically decreases the chances of finding employment, but hardly affects the quality of subsequent employment. The analysis suggests that negative duration dependence in the job finding rate is induced by negative signaling and not by human capital depreciation.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3565.

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Date of creation: 2011
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Handle: RePEc:ces:ceswps:_3565
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  1. Horny, Guillaume & Picchio, Matteo, 2010. "Identification of lagged duration dependence in multiple-spell competing risks models," Economics Letters, Elsevier, vol. 106(3), pages 241-243, March.
  2. Bart Cockx & Matteo Picchio, 2012. "Are Short-lived Jobs Stepping Stones to Long-Lasting Jobs?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 74(5), pages 646-675, October.
  3. van den Berg, Gerard J. & van der Klaauw, Bas, 2001. "Counseling and Monitoring of Unemployed Workers: Theory and Evidence from a Controlled Social Experiment," IZA Discussion Papers 374, Institute for the Study of Labor (IZA).
  4. Donald, Stephen G & Green, David A & Paarsch, Harry J, 2000. "Differences in Wage Distributions between Canada and the United States: An Application of a Flexible Estimator of Distribution Functions in the Presence of Covariates," Review of Economic Studies, Wiley Blackwell, vol. 67(4), pages 609-33, October.
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  6. Christian Belzil, 2001. "Unemployment insurance and subsequent job duration: job matching versus unobserved heterogeneity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(5), pages 619-636.
  7. Bratberg, Espen & Nilsen, Oivind Anti, 2000. " Transitions from School to Work and the Early Labour Market Experience," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 62(0), pages 909-29, Special I.
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  9. Lori G. Kletzer & Robert W. Fairlie, 2003. "The Long-Term Costs of Job Displacement for Young Adult Workers," ILR Review, Cornell University, ILR School, vol. 56(4), pages 682-698, July.
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  12. Brian McCall & Wei Chi, . "Unemployment Insurance, Unemployment Durations and Re-employment Wages," Working Papers 0306, Human Resources and Labor Studies, University of Minnesota (Twin Cities Campus).
  13. Richard B. Freeman & David A. Wise, 1982. "The Youth Labor Market Problem: Its Nature, Causes, and Consequences," NBER Books, National Bureau of Economic Research, Inc, number free82-1, October.
  14. Drago, Robert & Heywood, John S, 1992. "Is Worker Behaviour Consistent with Efficiency Wages?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 39(2), pages 141-53, May.
  15. Gaure, Simen & Røed, Knut & Westlie, Lars, 2008. "The Impacts of Labor Market Policies on Job Search Behavior and Post-Unemployment Job Quality," Memorandum 22/2008, Oslo University, Department of Economics.
  16. van den Berg, Gerard J. & van der Klaauw, Bas, 2000. "Combining Micro and Macro Unemployment Duration Data," IZA Discussion Papers 109, Institute for the Study of Labor (IZA).
  17. Brinch, Christian N., 2007. "Nonparametric Identification Of The Mixed Hazards Model With Time-Varying Covariates," Econometric Theory, Cambridge University Press, vol. 23(02), pages 349-354, April.
  18. Simon, Curtis J & Warner, John T, 1992. "Matchmaker, Matchmaker: The Effect of Old Boy Networks on Job Match Quality, Earnings, and Tenure," Journal of Labor Economics, University of Chicago Press, vol. 10(3), pages 306-30, July.
  19. Jurajda, Štepán, 2001. "Estimating the Effect of Unemployment Insurance Compensation on the Labor Market Histories of Displaced Workers," IZA Discussion Papers 294, Institute for the Study of Labor (IZA).
  20. Jeffrey M. Wooldridge, 2005. "Simple solutions to the initial conditions problem in dynamic, nonlinear panel data models with unobserved heterogeneity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(1), pages 39-54.
  21. 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.
  22. Yannis M. Ioannides & Linda Datcher Loury, 2004. "Job Information Networks, Neighborhood Effects, and Inequality," Journal of Economic Literature, American Economic Association, vol. 42(4), pages 1056-1093, December.
  23. Gaure, Simen & Røed, Knut & Zhang, Tao, 2005. "Time and Causality: A Monte Carlo Assessment of the Timing-of-Events Approach," Memorandum 19/2005, Oslo University, Department of Economics.
  24. Linda Datcher Loury, 2006. "Some Contacts Are More Equal than Others: Informal Networks, Job Tenure, and Wages," Journal of Labor Economics, University of Chicago Press, vol. 24(2), pages 299-318, April.
  25. Vishwanath, Tara, 1989. "Job Search, Stigma Effect, and Escape Rate from Unemployment," Journal of Labor Economics, University of Chicago Press, vol. 7(4), pages 487-502, October.
  26. Antoni Calvó-Armengol & Matthew O. Jackson, 2004. "The Effects of Social Networks on Employment and Inequality," American Economic Review, American Economic Association, vol. 94(3), pages 426-454, June.
  27. Doiron, Denise & Gørgens, Tue, 2008. "State dependence in youth labor market experiences, and the evaluation of policy interventions," Journal of Econometrics, Elsevier, vol. 145(1-2), pages 81-97, July.
  28. Belzil, Christian, 1995. "Unemployment Insurance and Unemployment over Time: An Analysis with Event History Data," The Review of Economics and Statistics, MIT Press, vol. 77(1), pages 113-26, February.
  29. Ehrenberg, Ronald G & Oaxaca, Ronald L, 1976. "Unemployment Insurance, Duration of Unemployment, and Subsequent Wage Gain," American Economic Review, American Economic Association, vol. 66(5), pages 754-66, December.
  30. Jaap H. Abbring & Gerard J. van den Berg, 2003. "The identifiability of the mixed proportional hazards competing risks model," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 65(3), pages 701-710.
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