Scarring Effects of the First Labor Market Experience

(2011) - Oskar Nordström Skans

Journal: SSRN Electronic Journal
Link:: https://www.ssrn.com/abstract=1790676
DOI:: 10.2139/ssrn.1790676
Links::
Tags:: #paper #NEET #Unemployment #LabourMarket
Cite Key:: [@nordstromskansScarringEffectsFirst2011]

Abstract

Scarring Effects of the First Labor Market Experience* The paper studies the relationship between teenagers’ first labor market experience and subsequent labor market performance using data on all Swedish youths graduating from vocational high schools in the recession years of 1991-94. Sibling fixed-effects combined with detailed data on high school programs, grades and work experience during high school are used in order to identify the causal long-run effects of post-graduation unemployment. The results show significant scarring effects resulting in higher risks of unemployment up to 5 years later. The results imply that poor labor market performance as a teenager result in persistent, but not permanent, negative effects.

Notes

“The paper studies the relationship between teenagers’ first labor market experience and subsequent labor market performance” (Nordström Skans, 2011, p. 1)

“Sibling fixed-effects combined with detailed data on high school programs, grades and work experience during high school are used in order to identify the causal long-run effects of post-graduation unemployment” (Nordström Skans, 2011, p. 1)

“results show significant scarring effects resulting in higher risks of unemployment up to 5 years later. The results imply that poor labor market performance as a teenager result in persistent, but not permanent, negative effects.” (Nordström Skans, 2011, p. 1)

“One possible rationale for policymakers’ focus on youth unemployment is that some young workers may experience very long-term negative effects even from short unemployment spells, a phenomenon usually referred to as “state dependence” or “scarring”.” (Nordström Skans, 2011, p. 2)

“Second, if hiring takes place under uncertainty about worker productivity, employers may use previous unemployment spells as a screening device in their hiring process and thus prefer to hire workers with shorter unemployment histories.1” (Nordström Skans, 2011, p. 4)

“Following Gregg (2001) we may summarize them as: 1. Individual heterogeneity: some people may be more prone than others to poor labor market outcomes due to persistent differences in preferences or abilities. 2. Labor market persistence: a young worker may become unemployed due to poor labor market conditions in the relevant region or occupation. The individual will be more likely to be unemployed in the future as well, if the conditions are persistent. 3. Scarring: Unemployment in itself may generate unemployment in the future either through firm discrimination, human capital depreciation, or other mechanisms.” (Nordström Skans, 2011, p. 9)