Teenage Unemployment: Permanent Scars or Temporary Blemishes?
NBER Working Paper No. 399 (Also Reprint No. r0397)
This paper examines the persistence and long-term impacts of early labor force experiences. The paper reports a rise in employment rates for a cohort of young men as they age, but points out that those persons with poor employment records early have comparatively poor records later. In order to asses the extent to which differences in later employment and wages are causally related to these earlier employment experiences, the methodologies of Heckman, Chamberlain, and others are extended to account for Markov type persistence and a straight forward estimation technique results. In addition, a Sims type causality test is used to measure the true impact of work experience on wages. The paper concludes that the effects of a period without work do not end with that spell. A teenager who spends time out of work in one year will probably spend less time working in the next than he would have had he worked the entire year. Furthermore, the lost work experience will be reflected in considerably lower wages. At the same time, the data provide no evidence that early unemployment sets off a vicious cycle of recurrent unemployment. The reduced employment effects die off very quickly. What appears to persist are effects of lost work experience on wages.