The Matthew effect of unemployment: how does it affect wages in Belgium

Amynah Gangji () and Robert Alain Plasman ()

No 07-19.RS, Working Papers DULBEA from Université libre de Bruxelles, Department of Applied Economics (DULBEA)

Abstract: Better understand the consequences of unemployment in terms of labour market opportunities as well as psychological well-being is of primary importance for any policies aimed at reducing unemployment. One way by which unemployment may impact on future labour market outcomes is through a reduction of subsequent earnings. This study therefore investigates the effects of the incidence and duration of unemployment on re-entry wages in Belgium using the Panel Study on Belgian Households for the period 1994-2002. The methodology used is based on a fixed effects model controlling for unobserved heterogeneity and sample selection bias. Results suggest that unemployment most often has a detrimental effect in terms of future labour market prospects. In other words, it can hardly be seen as an investment period allowing the unemployed to find a better match afterwards. The unemployment penalty may vanish if the unemployed find a stable job. However they are most often characterized by smaller average number of tenure years than individuals who did not go through such an experience. Consequently there is a risk that individuals having experienced unemployment will never be able to eliminate the wage penalty if they do not enter into stable job. Finally, we have found robust evidence that the wage penalty increases as the unemployment spell lengthens. This result is particularly alarming given the high proportion of long term unemployment in Belgium. These conclusions imply that unemployment costs go beyond the simple loss of income and human capital associated with job loss. This implies a substantial leeway for public intervention.

Keywords: unemployment incidence and duration; wage penalty; fixed effects model; sample selection bias. (search for similar items in EconPapers)
JEL-codes: C23 J64 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-lab
Date: 2007-10
View list of references View citations in EconPapers

Downloads: (external link)
http://dev.ulb.ac.be/dulbea/documents/1148.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:dul:wpaper:07-19rs

Access Statistics for this paper

More papers in Working Papers DULBEA from Université libre de Bruxelles, Department of Applied Economics (DULBEA)
Contact information at EDIRC.
Series data maintained by Pierre-Guillaume Méon ().