Scarring Effects of Remaining Unemployed for Long-Term Unemployed School-Leavers

Summary This study investigates whether and to what extent further unemployment experience for youths who are already long term unemployed imposes a penalty on subsequent labour market outcomes. We propose a flexible method for analysing the effect on wages aside from transitions from unemployment and employment within a multivariate duration model which controls for selection on observables and unobservables. We find that prolonging unemployment drastically decreases the chances of finding employment but hardly affects the quality of subsequent employment. The analysis suggests that negative duration dependence in the job finding rate is induced by negative signalling and not by human capital depreciation.