Unemployment and its scarring effect on wages in Germany: evidence from linked employer-employee data

PurposeAssess and compare scarring effects of unemployment in Germany to other countries and to consider firm heterogeneity.Design/methodology/approachThe author uses linked employer-employee data to analyze the effect of unemployment and its duration on future wages in Germany. Using administrative data on workers and firms in Germany and considering registered and unregistered unemployment episodes, the results show long-lasting wage losses caused by unemployment incidences. Furthermore, the estimations indicate that unemployment duration as well as selectivity into firms paying lower wages is of particular relevance for the explanation of wage penalties of re-employed workers.FindingsUnemployment causes massive and persistent wage declines in the future, which depend on the unemployment duration. Furthermore, reduced options of unemployed workers and selectivity in firms contribute to a large part of unemployment scarring.Practical implicationsFindings are relevant for current debates on unemployment and can help design measures to avoid huge costs of unemployment.Originality/valueThis paper analyses long-term unemployment scarring by considering not only unemployment duration but also selectivity in firms and its effect on the scarring effect.

Lost in recessions: youth employment and earnings in Spain

Young workers in Spain face the unprecedented impact of the Great Recession and the COVID-19 crisis in short sequence. Moreover, they have also experienced a deterioration in their employment and earnings over the last three decades. In this paper, we document this evolution and adopt a longitudinal approach to show that employment and earnings losses suffered by young workers during recessions are not made up in the subsequent expansions. We also estimate the size of the scarring effects of entering the job market in a recession for college-educated workers during their first decade in the labor market. Our empirical estimates indicate that while there is some evidence of scarring effects, the driving force is a trend worsening of youth labor market outcomes.

Severe Prenatal Shocks and Adolescent Health: Evidence from the Dutch Hunger Winter

This paper investigates impacts, mechanisms and selection effects of prenatal exposure to multiple shocks, by exploiting the unique natural experiment of the Dutch Hunger Winter. At the end of World War II, a famine occurred abruptly in the Western Netherlands (November 1944 - May 1945), pushing the previously and subsequently well-nourished Dutch population to the brink of starvation. We link high-quality military recruits data with objective health measurements for the cohorts born in the years surrounding WWII with newly digitised historical records on calories and nutrient composition of the war rations, daily temperature, and warfare deaths. Using difference-in-differences and triple differences research designs, we show that the cohorts exposed to the Dutch Hunger Winter since early gestation have a higher Body Mass Index and an increased probability of being overweight at age 18, and that this effect is partly accounted for by warfare exposure and a reduction in energy-adjusted protein intake. Moreover, we account for selective mortality using a copula-based approach and newly-digitised data on survival rates, and find evidence of both selection and scarring effects. These results emphasise the complexity of the mechanisms at play in studying the consequences of early conditions.

Job Insecurity

Job insecurity has been high on the policy and research agenda since the 1980s: there has always been cause for concern about job loss, though those causes may vary across context and time. Job insecurity is particularly prevalent among employees with a more precarious profile, in particular employees in blue-collar positions or on temporary contracts, and among employees in jobs of lower quality. Job insecurity has typically been advanced as a stressor and a cause for imbalance in the employment relationship, which has led to the hypothesis that job insecurity induces strain (e.g., poorer health and well-being), poorer attitudes vis-à-vis the job and the organization (e.g., poorer organizational commitment), and poorer performance. This hypothesis has found overall support. In addition, job insecurity also threatens one’s identity, and this has been related to more conservative social attitudes and behaviors, for example, in terms of voting intentions and behavior. Finally, job insecurity affects outcomes beyond the current job and the organization: it affects other stakeholders, for example, labor unions and families, and it has scarring effects in the long term. Studies have also attempted to identify moderators that could buffer the relationship between job insecurity and outcomes; these mostly concern personal, job, and organizational resources. Other studies have sought to explain differences between countries in terms of both structural features and cultural values.

Indonesia

Indonesia has responded with a bold and comprehensive policy package to cushion the impact of the COVID-19 pandemic. The economy rebounded in the third quarter of 2020, and the economic recovery is projected to strengthen in 2021 and 2022. Strong policy support and an improving global economy will be the main drivers initially, and greater mobility and confidence will follow with the planned vaccination program in 2021. The uncertainty surrounding the growth outlook is larger than usual. Early completion of a widespread vaccination program is an upside risk, while a protracted pandemic remains a downside risk. The macro-financial fallout of the pandemic and economic downturn could be larger than expected, and credit conditions could be slow to improve. Ongoing reforms aimed at promoting investment are expected to help mitigate the scarring effects from the pandemic and put the economy on a sustained growth path that builds on Indonesia’s favorable demographics.

Subjective Well-Being Scarring through Unemployment: New Methods, New Results?

Scarring effects of unemployment on subjective well-being (SWB), i.e., negative effects that remain even after workers reenter employment, are well documented in the literature. Nevertheless, the theoretical mechanisms by which unemployment leads to long-lasting negative consequences for SWB are still under debate. Thus, we theorize that unemployment can have an enduring impact mainly through (i) the experience of unemployment as an incisive life event that, for example, affects health and (ii) unemployment as a driver of future unemployment. Using advanced longitudinal modeling that controls for group-specific trends, we estimate SWB scarring through unemployment using German panel data from the Socio-Economic Panel (SOEP). Our results consistently show a large negative effect of unemployment on SWB as well as significant lasting scarring effects (for both men and women as well as for short- and long-term unemployment spells). Further analyses reveal that repeated periods of unemployment drive these effects, implying that there are hardly any adaptations to unemployment that buffer its effect on SWB. We conclude that scarring effects through unemployment mainly work through unemployment increasing the probability of future unemployment. Regarding policy implications, our findings suggest that preventing unemployment, regardless of its duration, is beneficial for individual well-being.

A Unified Model of Cohort Mortality for Economic Analysis

We propose a dynamic production function of population health and mortality from birth onwards. Our parsimonious model provides an excellent fit for the mortality and survival curves for both primate and human populations since 1816. The model sheds light on the dynamics behind many phenomena documented in the literature, including (i) the existence and evolution of mortality gradients across socio-economic statuses, (ii) non-monotonic dynamic effects of in-utero shocks, (iii) persistent or “scarring” effects of wars and (iv) mortality displacement after large temporary shocks such as extreme weather.

The geographical impact of the Covid-19 crisis on precautionary savings, firm survival and jobs: Evidence from the United Kingdom’s 100 largest towns and cities

In this commentary, we trace the economic and spatial consequences of the Covid-19 pandemic in terms of potential business failure and the associated job losses across the 100 largest cities and towns in the United Kingdom (UK). The article draws on UK survey data of 1500 firms of different size classes examining levels of firm-level precautionary savings. On business failure risk, we find a clear and unequal impact on poorer northern and peripheral urban areas of the UK, indicative of weak levels of regional resilience, but a more random distribution in terms of job losses. Micro firms and the largest firms are the greatest drivers of aggregate job losses. We argue that spatially blind enterprise policies are insufficient to tackle the crisis and better targeted regional policies will be paramount in the future to help mitigate the scarring effects of the Covid-19 pandemic in terms of firm failures and the attendant job losses. We conclude that Covid-19 has made the stated intention of the current government’s ambition to ‘level up’ the forgotten and left-behind towns and cities of the UK an even more distant policy objective than prior to the crisis.

COVID-19 and the Growth Potential

The lasting economic impact of the coronavirus pandemic will become apparent in the development of the macroeconomic factors of production — labour, capital, human capital as well as the stock of technical knowledge. Changes in behaviour such as a greater acceptance of technology can strengthen potential output permanently. By contrast, negative effects may arise from growing protectionist attitudes or long-lasting uncertainties and ‘scarring effects’. In any case, the coronavirus crisis has induced a technology push. This may be intensified if digitisation gains additional support from investments in infrastructure or if the pandemic heralds a renaissance in the natural sciences — with a corresponding impact on human and physical capital as well as on technical knowledge. For the time being, it is unclear what effects the restructuring and secular structural change will have on potential output. However, dangers are lurking in the acceleration of geopolitical tensions, a misunderstanding of technological sovereignty and increasing government interventions, which, as a whole, could hamper innovation and investment.