Unemployment and Subsequent Earnings: Estimating Scarring among British Men 1984-94

(2001) - Maiy Gregoiy

Journal: The Economic Journal
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Tags:: #paper #NEET #Unemployment #LabourMarket
Cite Key:: [@Gregoiy2001]

Abstract

This paper estimates the impact of unemployment on earnings following re-employment for a large and representative sample of British men, 1984-94. Unemployment incidence is found to have only a temporary effect, an average earnings setback of 10% on initial re-engagement largely eroding over two years. The effect of unemployment duration, by contrast, is permanent, a one-year spell adding a further penalty of 10 percentage points. These wage penalties are least for young men and the low paid - those most at risk of unemployment - and greatest for prime age and highly paid men.

Notes

“Unemployment incidence is found to have only a temporary effect, an average earnings setback of 10% on initial re-engagement largely eroding over two years. The effect of unemployment duration, by contrast, is permanent, a one-year spell adding a further penalty of 10 percentage points. These wage penalties are least for young men and the low paid - those most at risk of unemployment - and greatest for prime age and highly paid men.” (Gregoiy, 2001, p. 607)

“As emphasised by Gregg (this volume), for young workers, unemployment is very much a minority experience; only between 3% and just over 5% of men in employment at any point in time have been unemployed within the previous twelve months (Fig. 1).” (Gregoiy, 2001, p. 613)

“This study has estimated the effects of unemployment on the subsequent earnings of British men over the decade 1984-94. We find consistent evidence of scarring: unemployment imposes further and lasting costs through the depression of subsequent earnings. The impact of this occurs in two parts, relating to incidence and duration. Unemployment incidence itself gives rise to an earnings penalty, but this is largely temporary, most of it being eliminated after two years of continuous re-employment. The effect of duration, on the other hand, is permanent and proportional to the length of the spel” (Gregoiy, 2001, p. 622)