Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/251329
Authors: 
Andrews, Dan
Deutscher, Nathan
Hambur, Jonathan
Hansell, David
Year of Publication: 
2020
Series/Report no.: 
Treasury Working Paper No. 2020-01
Publisher: 
The Australian Government, The Treasury, Canberra
Abstract: 
This paper explores the effects of labour market conditions at graduation on an individual's work-life over the following decade. Australians graduating into a state and year with a 5 percentage point higher youth unemployment rate can expect to earn roughly 8 per cent less in their first year of work and 3½ per cent less after five years, with the effect gradually fading to around zero ten years on. The magnitude of this effect varies according to the characteristics of the individual and the tertiary institution they attend. We then explore the mechanisms behind this scarring. Scarring partly reflects the subsequent evolution of the unemployment rate - the fact that unemployment shocks tend to persist - highlighting the potential for timely and effective macroeconomic stabilisation policies to ameliorate these scarring effects. More generally, job switching to more productive firms emerges as a key channel through which workers recover from adverse shocks that initially disrupt (worker-firm) match quality. We find some evidence that the speed of recovery has slowed since 2000, which is consistent with the decline in labour market dynamism observed in Australia over that period.
Subjects: 
Wages
job mobility
job search
JEL: 
E24
J62
J64
Creative Commons License: 
cc-by Logo
Document Type: 
Working Paper

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