Unemployment and Subsequent Earnings: Estimating Scarring Among British Men 1984–94

This paper estimates the impact of unemployment on earnings following re‐employment for a large and representative sample of British men, 1984–94. Unemployment incidence is found to have only a temporary effect, an average earnings setback of 10% on initial re‐engagement largely eroding over two years. The effect of unemployment duration, by contrast, is permanent, a one‐year spell adding a further penalty of 10 percentage points. These wage penalties are least for young men and the low paid – those most at risk of unemployment – and greatest for prime age and highly paid men.