Scarring Effects of Unemployment

41 Pages Posted: 15 Dec 2011

See all articles by Øivind Anti Nilsen

Øivind Anti Nilsen

Norwegian School of Economics (NHH) - Department of Economics; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Katrine Holm Reiso

Norwegian School of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: December 1, 2011

Abstract

Using Norwegian individual register data of young workers, from the period 1986-2008, we analyze whether there are large and persistent negative relationships between unemployment and the risk of repeated unemployment and being out of labor force. A nearest-neighbor propensity score matching method is applied to make the treatment group (the unemployed) and the control group (the employed) as similar as possible. By tracking workers over a 10-year follow-up period, we find that unemployment has a negative effect on later labor market attachment. This is consistent with existing findings in the literature. The negative effects decrease over time. Using the bounding approach proposed by Rosenbaum (2002) to analyze the importance of unobserved variables, our results indicate that a relatively high level of unobserved selection bias could be present in the data before changing the inference. Thus, unemployment leaves young workers with long-term scars.

Keywords: Unemployment persistency, scarring, matching technique

JEL Classification: J64, J65, C23

Suggested Citation

Nilsen, Oivind Anti and Reiso, Katrine Holm, Scarring Effects of Unemployment (December 1, 2011). NHH Dept. of Economics Discussion Paper No. 26/2011. Available at SSRN: https://ssrn.com/abstract=1972294 or http://dx.doi.org/10.2139/ssrn.1972294

Oivind Anti Nilsen (Contact Author)

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5045 Bergen
Norway

IZA Institute of Labor Economics

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

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

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