Help Not Wanted: The Dismal Science of Youth Unemployment's Scarring Effect

36 Pages Posted: 8 Aug 2016 Last revised: 9 May 2023

See all articles by Jordan Glatt

Jordan Glatt

Deloitte Consulting LLP

Phani V. Wunnava

Middlebury College; Institute for the Study of Labor (IZA)

Abstract

The scarring effect is defined as an increase in the probability of future unemployment spells and the reduction of subsequent wages as the result of joblessness early in one's working years. Many youths get into a rut at the beginning of their professional careers when they become unemployed, hindering future individual prospects and producing negative consequences for the economy as a whole. Because there is considerable evidence in the United States that early job displacement is followed by a higher risk of subsequent unemployment and lower trajectory for future earnings after re-entry, it is crucial to gain a better understanding of the economic factors that influence the youth unemployment rate in order to reduce the consequences on youths' future outlooks (Arulampalam, Gregg, and Gregory, 2001). This study not only demonstrates that the scarring effect is real but also allows for policy recommendations to be obtained from this analysis.

Keywords: Great Recession, earnings, job displacement, youth unemployment, unemployment spells, scarring, re-entry

JEL Classification: J24, J31, J64, I21

Suggested Citation

Glatt, Jordan and Wunnava, Phani V., Help Not Wanted: The Dismal Science of Youth Unemployment's Scarring Effect. IZA Discussion Paper No. 10069, Available at SSRN: https://ssrn.com/abstract=2819350 or http://dx.doi.org/10.2139/ssrn.2819350

Jordan Glatt (Contact Author)

Deloitte Consulting LLP ( email )

1919 N Lynn Street
Arlington, VA 22209
United States

Phani V. Wunnava

Middlebury College ( email )

Middlebury, VT 05753
United States

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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