Scarred by unemployment
A new study carried out at NHH finds that unemployment has disturbing long term negative effects. Young people who have been unemployed are scarred by the experience. The younger they are, the more likely they are to be jobless later in life. Some of them drop out of the labour market for good.
'People's early employment history turns out to be a decisive factor in relation to later success in working life. I believe this finding can be used to justify substantial efforts targeting young people,' says Professor Øivind Anti Nilsen.
In the article 'Scarring effects of unemployment', Nilsen and doctoral candidate Katrine Holm Reiso present their research, in which they have studied the long-term effects of having experienced unemployment.
Nilsen and Reiso use the term scarring effects.
'I think scarring effects is a good description. It refers to something that doesn't just go away, but stays with you for a long time,' says Reiso. Scarring is the long-term effect of unemployment on future opportunities in the employment market.
The study shows that young employees can be badly affected by a period of unemployment. The probability of them experiencing several periods of unemployment or dropping out of the labour market is higher than for people who have never been unemployed. And there are no observable differences between the groups. They have all completed an education and been in employment for at least two years. Simply having experienced unemployment leads to people being scarred for many years.
'When a young person has been unemployed for a period, this gives a stronger signal about his or her qualifications and abilities than is the case with older people,' says Reiso, 'and if it leads to them permanently leaving the labour market, it is far more serious, because they have their whole career ahead of them.'
Welfare benefits and selection
The Norwegian labour market is interesting for several reasons, according to the two researchers from the Department of Economics, not least because of the low level of unemployment and good welfare benefits.
'That is why it was natural to assume that there could be clear scarring effects,' Nilsen says. 'If you are one of relatively few unemployed people, an employer might see this as a strong indication of your abilities, compared with a situation in which very many people are unemployed. Moreover, Norway has a welfare system that can result in people being unemployed longer and in negative selection in relation to disability pension.'
The researchers believe that these histories of unemployment reveal a certain dependence on the state.
with this, but perhaps we're beginning to see that things have gone too far. It is a challenge to the benefits system if living on benefits prevents people from making a big enough effort to actually find paid work.'
A year on benefits
This spring, the Norwegian Broadcasting Corporation carried reports about young people saying that they wanted to take a year off to live on benefits. Lower and upper secondary school pupils are considering taking a break from school and expect to receive benefits from NAV. This group is not unemployed and is therefore not part of the two NHH researchers' sample, but Nilsen believes that taking a year off to live off benefits can have a negative effect, also in the long term.
'It can be a dangerous strategy. I would be extremely careful about taking a year off because of the long-term effects. It sends a signal to potential employers. They will ask themselves what an applicant spent the year doing and will probably assume that he or she spent the whole morning in bed, played computer games and generally lazedaround. In such case, it can prove to be an expensive year off.'
'When welfare schemes have existed for a certain period, the chances of their being misused tend to increase. These benefits originally targeted specific groups, but it seems that, over time, others also tend to want to take advantage of them. That is a risk when people who are not part of the intended target group also make use of these benefits,' Nilsen believes.
In conclusion, Reise and Nilsen say that the results clearly show that a person's early employment history is a decisive factor in relation to subsequent success in working life.
'These findings can be used to justify public efforts targeting young people,' Nilsen says.
This article is taken from the English version of NHH Bulletin for 2012.