Labor Market Institutions and Long-Term Effects of Youth Unemployment

41 Pages Posted: 3 May 2014

See all articles by Daiji Kawaguchi

Daiji Kawaguchi

University of Tokyo - Graduate School of Economics

Tetsushi Murao

Kyushu University

Abstract

Graduating from a school during a time of adverse economic conditions has a persistent, harmful effect on workers' subsequent employment opportunities. An analysis of panel data from OECD countries during the 1960-2010 periods reveals that a worker who experiences a one-percentage-point higher unemployment rate while the worker is 16-24 years old has a 0.14 percentage-point higher unemployment rate at ages 25-29 and 0.03 percentage points higher at ages 30-34. The persistence of this negative effect is stronger in countries with stricter employment protection legislation. A composite index for labor market rigidity is constructed and the index is shown to have positive correlation with the persistence. Moderating macroeconomic fluctuations is more important in countries that have more persistent labor-market entry effects on subsequent outcomes.

Keywords: persistence, unemployment, port of entry, cohort analysis, hysteresis

JEL Classification: E24, J64, J65, K31

Suggested Citation

Kawaguchi, Daiji and Murao, Tetsushi, Labor Market Institutions and Long-Term Effects of Youth Unemployment. IZA Discussion Paper No. 8156, Available at SSRN: https://ssrn.com/abstract=2432440

Daiji Kawaguchi (Contact Author)

University of Tokyo - Graduate School of Economics ( email )

Tokyo
Japan

Tetsushi Murao

Kyushu University ( email )

No Address Available

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