Heterogeneous Scarring Effects of Full-Year Nonemployment

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American Economic Association, American Economic Review, ISSN: 0002-8282, Vol: 107, Issue: 5, Page: 369-373

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Guvenen, Fatih; Karahan, Fatih; Ozkan, Serdar; Song, Jae
American Economic Association
Economics, Econometrics and Finance
article description
Drawing on administrative data from the Social Security Administration, we find that individuals that go through a long period of non-employment suffer large and long-term earnings losses (around 35-40 percent) compared to individuals with similar age and previous earnings histories. Importantly, these differences depend on past earnings, and are largest at the bottom and top of the earnings distribution. Focusing on workers that are employed 10 years after a period of long-term non-employment, we find much smaller earnings losses (8-10 percent). Furthermore, the large earnings losses of low-income individuals are almost entirely due to employment effects.