Are there long-term earnings scars from youth unemployment in Germany?


Möller, Joachim ; Umkehrer, Matthias


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URL: https://ub-madoc.bib.uni-mannheim.de/37320
URN: urn:nbn:de:bsz:180-madoc-373204
Document Type: Working paper
Year of publication: 2014
The title of a journal, publication series: ZEW Discussion Papers
Volume: 14-089
Place of publication: Mannheim
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: J30 , J69 , C21 , C26,
Keywords (English): Scarring , state dependence , youth unemployment
Abstract: 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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Möller, Joachim ; Umkehrer, Matthias (2014) Are there long-term earnings scars from youth unemployment in Germany? Open Access ZEW Discussion Papers Mannheim 14-089 [Working paper]
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