Heterogeneous Scarring Effects of Full-Year Nonemployment

Fatih Guvenen, Consultant

Fatih Karahan

Serdar Ozkan

Jae Song

May 2017 | American Economic Review: Papers and Proceedings, 107(5): 369-373

Drawing on administrative data from the Social Security Administration, we find that individuals that go through a long period of non-employment suffer large and long-term earnings losses (around 35-40 percent) compared to individuals with similar age and previous earnings histories. Importantly, these differences depend on past earnings, and are largest at the bottom and top of the earnings distribution. Focusing on workers that are employed 10 years after a period of long-term non-employment, we find much smaller earnings losses (8-10 percent). Furthermore, the large earnings losses of low-income individuals are almost entirely due to employment effects.