Scarring, effects of early career unemployment

Young people often experience difficulties when entering the labour market. Therefore the youth unemployment rate usually is much higher than the adult unemployment rate. While early career unemployment spells may be temporary, there is some evidence that these spells may impose enduring disadvantages on the individuals, such as lower wages or more and longer subsequent unemployment spells.

This paper focuses on this last possibility. Using data from the Flemish PES, the results of a two-part model show that unemployment at the beginning of the career indeed has a negative effect on the later unemployment chances and duration. These scarring effects seem to fade a little as time goes by, but even a decade after leaving education they still remain quite substantial. The hypothesis that the negative effects are stronger for people with a weak labour market position is refuted. Finally, we find that the extent of the scarring depends on the business cycle at the time of graduation; the negative effects are reduced for those who enter the labour market in times of high unemployment.