Scars of Recessions in a Rigid Labor Market

Abstract

We study the impact of graduating in a recession in Flanders (Belgium), i.e. in a rigid labor market. In the presence of a high minimum wage, a typical recession hardly influences the hourly wage of low educated men, but reduces working time and earnings by about 4.5% up to twelve years after graduation. For the high educated, the working time is not persistently affected, but the penalty on the hourly wage (and earnings) increases with experience, and attains roughly -6% ten years after labor market entry. We also contribute to the literature on inference with few clusters.

Keywords: cluster robust, graduating, labor market rigidity, recession, scars, few clusters

JEL Classification: C12, C41, E32, I21, J22, J23, J31, J6