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Title: The Long-Term Effects of Youth Unemployment
Resulting in 1 citation.
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Savage, Timothy Howard |
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The Long-Term Effects of Youth Unemployment Ph.D. Dissertation, The University of North Carolina at Chapel Hill, 1999 Cohort(s): NLSY79 Publisher: UMI - University Microfilms, Bell and Howell Information and Learning Keyword(s): Endogeneity; Human Capital; Labor Market Outcomes; Legislation; Training; Unemployment, Youth; Vocational Training Most analyses of the potential adverse impacts of labor market legislation focus primarily on contemporaneous employment effects. Particularly for young people, such a focus might be quite shortsighted. Using a sample of young men from the 1979 National Longitudinal Survey of Youth (NLSY), this research presents policy-relevant results on the long-term impacts of youth unemployment on later labor market outcomes. It examines whether there are any substantial adverse effects on a number of different outcomes, including training and earnings. The existing youth labor market literature provides little guidance about the magnitude and duration of these effects. A spell of involuntary unemployment can lead to sub-optimal investments in human capital among young people in the short run. A theoretical model of dynamic human capital investment and accumulation predicts a rational "catch-up" response to such a spell. Using semiparametric estimation techniques, the empirical results control extensively for the endogeneity of prior unemployment and unobserved heterogeneity. These results provide strong evidence of a catch-up response. I find that an unemployment spell experienced today increases the likelihood of undertaking vocational training in the near future. It also increases for many years to come the likelihood of working and the amount of time spent working among those who work. This evidence is entirely new to the literature. Unlike much of the literature, however, I find evidence of short-lived persistence in unemployment after controlling for the endogeneity of prior unemployment. Unemployment experienced this year increases the likelihood that unemployment is experienced in the near future and lengthens the duration of future spells. Finally, I find the negative effect of prior unemployment on earnings is mitigated over time as a result of the catch-up response. The theoretical model exactly predicts that this will happen. Controlling for the observed human capi tal stock, 13 weeks of unemployment experienced last year reduces average hourly earnings by 4.7 percent. A similar spell experienced four years ago, however, reduces them by only 1.3 percent. Dynamic simulations show that the adverse impacts from a large exogenous labor market shock experienced at age 22 have largely dissipated by age 27. |
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Bibliography Citation
Savage, Timothy Howard. The Long-Term Effects of Youth Unemployment. Ph.D. Dissertation, The University of North Carolina at Chapel Hill, 1999. |