Unemployment and Subsequent Earnings: Estimating Scarring Among British Men 1984-94

Abstract

This paper estimates the impact of unemployment on earnings following re-employment for a large and representative sample of British men, 1984-94. Unemployment incidence is found to have only a temporary effect, an average earnings setback of 10% on initial re-engagement largely eroding over two years. The effect of unemployment duration, by contrast, is permanent, a one-year spell adding a further penalty of 10 percentage points. These wage penalties are least for young men and the low paid - those most at risk of unemployment - and greatest for prime age and highly paid men.

Keywords: Scarring, displaced workers, unemployment, re-engagement, earnings profiles

JEL Classification: J3, J6