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Are there long-term earnings scars from youth unemployment in Germany?

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  • Möller, Joachim
  • Umkehrer, Matthias

Abstract

We analyze the relationship between early-career unemployment and prime-age earnings with German administrative linked employer-employee data. The careers of more than 720,000 male apprenticeship graduates from the cohorts of 1978 to 1980 are followed over 24 years. On average, early-career unemployment has substantial negative effects on earnings accumulated later in life. An identification strategy based on plant closure of the training firm at the time of graduation suggests that the revealed correlation is not the result of unobserved heterogeneity. Scarring effects also vary considerably across the earnings distribution. Workers with a high earnings potential are able to offset adverse consequences of early-career unemployment to a large extent. Workers who are located at the bottom of the prime-age earnings distribution, in contrast, suffer substantial and persistent losses. Our findings imply that a policy with the aim of preventing early-career unemployment would have long-lasting beneficial effects on future earnings.

Suggested Citation

  • Möller, Joachim & Umkehrer, Matthias, 2014. "Are there long-term earnings scars from youth unemployment in Germany?," ZEW Discussion Papers 14-089, ZEW - Leibniz Centre for European Economic Research.
  • Handle: RePEc:zbw:zewdip:14089
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    Citations

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    Cited by:

    1. Joachim Möller & Gerhard Bosch & Günther Schmid & Jörg Schmidt & Jörg Asmussen, 2015. "Jugendarbeitslosigkeit in Europa: Generation ohne Perspektive?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 68(17), pages 03-21, September.
    2. Mohrenweiser Jens & Pfeiffer Friedhelm, 2015. "Coaching Disadvantaged Young People: Evidence from Firm Level Data," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 235(4-5), pages 459-473, August.
    3. repec:spr:empeco:v:56:y:2019:i:2:d:10.1007_s00181-018-1444-5 is not listed on IDEAS
    4. Umkehrer, Matthias, 2015. "The impact of changing youth employment patterns on future wages," IAB Discussion Paper 201531, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    5. Dietrich, Hans, 2015. "Jugendarbeitslosigkeit aus einer europäischen Perspektive : theoretische Ansätze, empirische Konzepte und ausgewählte Befunde," IAB Discussion Paper 201524, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].

    More about this item

    Keywords

    scarring; state dependence; youth unemployment;

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J69 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Other
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation

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