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Scarring effects: A review of Australian and international literature

Jeff Borland
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Jeff Borland: University of Melbourne

Australian Journal of Labour Economics (AJLE), 2020, vol. 23, issue 2, 173-187

Abstract: Scarring occurs when an adverse experience for a worker – associated with macroeconomic conditions - has negative long-term impacts on their labour market outcomes. For example, a worker who is entering the labour market during a macroeconomic downturn may experience a spell of unemployment or have to take a job for which they are over-qualified – and those experiences then affect the worker’s labour market outcomes in future years. Recent studies find that scarring effects are substantial: for example, the main Australian study on scarring finds that graduates entering the labour market at a time when the youth rate of unemployment rate is 5ppts above average lowers annual earnings of graduates by about 8 per cent at the time of entry and by 3.5 per cent after five years. This article reviews Australian and international evidence on scarring; and provides an overview of the main channels through which scarring occurs.

Keywords: scarring; unemployment; job quality (search for similar items in EconPapers)
JEL-codes: J23 J30 J60 (search for similar items in EconPapers)
Date: 2020
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Handle: RePEc:ozl:journl:v:23:y:2020:i:2:p:173-187