We analyze the relationship between early-career unemployment and prime-age earnings with
German administrative linked employer-employee data. The careers of more than 720,000 male
apprenticeship graduates from the cohorts of 1978 to 1980 are followed over 24 years. On average,
early-career unemployment has substantial negative effects on earnings accumulated later in life.
An identification strategy based on plant closure of the training firm at the time of graduation
suggests that the revealed correlation is not the result of unobserved heterogeneity. Scarring effects
also vary considerably across the earnings distribution. Workers with a high earnings potential are
able to offset adverse consequences of early-career unemployment to a large extent. Workers who
are located at the bottom of the prime-age earnings distribution, in contrast, suffer substantial
and persistent losses. Our findings imply that a policy with the aim of preventing early-career
unemployment would have long-lasting beneficial effects on future earnings.
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