ESRI Seminar: "Entering the Labour Market when the Economy is Weak: Does it Scar and is it Insured Against?"

Speaker: Rob Joyce, Institute for Fiscal Studies 

We study the 'scarring' effects of entering the labour market at a time when the economy is weak, using the history of swings in the UK economic cycle over the past 4 decades together with synthetic cohort panels constructed from large-scale household survey datasets. The scarring literature has hitherto focused on pure labour market outcomes (gross earnings levels and employment probabilities). As such as it has remained separate from the substantial literature on insurance against income shocks of varying degrees of persistence, although scarring is really one important example of such a shock. This makes it difficult to infer much about the implications of scarring for economic welfare, which is what we are ultimately interested in. Relevant potential means of insurance include the tax-benefit system, spousal labour supply, cohabitation with parents, and assets. As with most previous scarring literature we find impacts on labour market outcomes that do persist for at least a few years before fading to small or zero. But we then trace through the impacts to outcomes such as household net income and consumption, and find substantial degrees of insurance.