The Long-Term Effects of Youth Unemployment

Using NLSY data, we examine the long-term effects of youth unemployment on later labor market outcomes. Involuntary unemployment may yield suboptimal investments in human capital in the short run. A theoretical model of dynamic human capital investment predicts a rational "catch-up" respon...

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Bibliographic Details
Published inThe Journal of human resources Vol. 41; no. 2; pp. 259 - 293
Main Authors Mroz, Thomas A, Savage, Timothy H
Format Journal Article
LanguageEnglish
Published University of Wisconsin Press 2006
Subjects
Economic Impact
Human Capital
Labor Market
Persistence
Prediction
Responses
Salaries
Unemployment
Wages
Youth
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Summary:Using NLSY data, we examine the long-term effects of youth unemployment on later labor market outcomes. Involuntary unemployment may yield suboptimal investments in human capital in the short run. A theoretical model of dynamic human capital investment predicts a rational "catch-up" response. Using semiparametric techniques to control for the endogeneity of prior behavior, our estimates provide strong evidence of this response. We also find evidence of persistence in unemployment. Combining our semiparametric estimates with a dynamic approximation to the lifecycle, we find that unemployment experienced as long ago as ten years continues to affect earnings adversely despite the catch-up response.
ISSN:0022-166X
DOI:10.3368/jhr.XLI.2.259