Is Unemployment Really Scarring? Effects of Unemployment Experiences on Wages

By W. Arulampalam. Social Science Research Network, 2001

598 citations recorded by the source corpus.

This paper looks at the effects of unemployment on re-employment wage for men using the first seven waves of the British Household Panel Survey (BHPS) conducted over the period 1991- 1997. In particular, how the effect of an interruption changes over time, and whether the type of interruption itself matters or not for re-employment wage, are addressed. The issue of sample selection and unobserved heterogeneity are also addressed in the analyses. This study finds that, unemployment does have a scarring effect on individuals who experience it, in terms of earnings losses on re-employment jobs. In particular it finds that, an unemployed individual on returning to work will earn about 6% less than an otherwise equivalent individual who makes an employment to employment transition, during the first year of employment. This differential is estimated to increase to about 14% in the fourth year before starting to decline. In addition, the first spell of unemployment is estimated to have the largest effect with repeat incidences causing a further scarring. Separations due to redundancy are found to be less scarring relative to other causes. The worst affected were men aged over 45 with no educational qualifications. The study could not find any significant effects of unemployment duration on subsequent wages in addition to the incidence effect.

Subfields: Economics and Econometrics, General Health Professions, Sociology and Political Science

View Paper: https://www.semanticscholar.org/paper/9860716c51a39bcf8825c39805d9c069869d7015

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Citations in the corpus

The Wage Scar from Youth Unemployment (2004, methodology): “Arulampalam (2001) uses longitudinal data from the British Household Panel Survey”
Unemployment and Psychological Well-Being (2007, background): “Unemployment may affect expected discounted lifetime earnings (see Pissarides (1993) and Arulampalam (2001)), which in turn may affect current life satisfaction.”
Do Employers Use Unemployment as a Sorting Criterion When Hiring? Evidence from a Field Experiment (2014, methodology): “Examples of studies investigating the effects of the workers’ history of unemployment on wages and/or employment are Ellwood (1982), Concoran (1982), Heckman and Borjas (1990), and Mroz and Savage (2006) using US data, Narendranathan and Elias (1993), Arulampalam et al. (2000), Arulampalam (2001, 20”
Deep and persistent disadvantage in Australia (2013, background): “• Loss of employability also increases with the duration of joblessness (Arulampalam 2001; Cahuc and Zylberberg 2004).”
Differences in opportunities? Wage, unemployment and house-price effects on migration (2010, unknown): “To account for the effects of (temporary) non-work on subsequent wages (e.g. Arulampalam 2001), we also include as an explanatory variable whether 10 Such a variable is insufficient to adequately capture wage differences between ethnic groups, but small sample sizes prevent a more disaggregated…”
Overeducation at the Start of the Career: Stepping Stone or Trap? (2013, background): “In addition, by taking these positions, workers avoid unemployment scarring (see, e.g., Arulampalam, 2001), resulting from negative signalling, skill depreciation or psychological discouragement.”
Youth unemployment and active labor market policies in Europe (2016, background): “On the other hand, early unemployment spells may have negative effects on later-life outcomes such as lower wages (Arulampalam 2001; Gregg and Tominey 2005; Kahn 2010; Skans 2004), lower labor market attachment (Gregg 2001), lower well-being (Daly and Delaney 2013), and a higher propensity to engage”
Scarring effects of remaining unemployed for long‐term unemployed school‐leavers (2013, background): “The existence of persistent earnings penalties of unemployment experienced early in the career is confirmed in other studies both in the USA (Ellwood, 1982; Kletzer and Fairlie, 2003) and in Europe (Arulampalam, 2001; Gregg, 2001; Gregg and Tominey, 2005; Gartell, 2009).”