Content area
Full text
Introduction
There are numerous studies in the research literature analysing the scarring effects of unemployment. A variety of studies reveal long-term negative effects of unemployment on the wage level (e.g. Arulampalam et al., 2001; Arulampalam, 2001; Nordström Skans, 2004; Gregg and Tominey, 2005; Kahn, 2010; Bell and Blanchflower, 2011). This effect may be due to a combination of different mechanisms; absence from the labour market implies that the individual lose skills or competence, which results in deterioration in human capital. Hence, the employers use unemployment as a signalling variable. Becker (1975) argues that the individual will no longer be able to return to the earlier productivity due to the loss of human capital that is initially caused by the unemployment. The effect of long-term unemployment may also result in the individual changing their search behaviour, for example, by being less active in applying for jobs or quickly accepting jobs below their competence level. On the other hand, Ma and Weiss (1993) observed that individuals have extended spells of unemployment since they reject jobs below their “reservation wage”. McCormick (1990) suggested that former job experiences are stronger and more reliable signals for productivity than the duration of spells of unemployment. However, a string of job matching theory is developed by Pissarides (1994), in which he stipulated that unemployed individuals accept jobs of poor quality. These jobs are also more likely to be eliminated in the future. Hence, it is natural for individuals who have been unemployed in the past to have a higher probability to be unemployed in the future.
A highly relevant and hitherto relatively uncharted question in Sweden is whether individuals who were economically inactive received long-term scarring effects on their income. Individuals who neither work nor study (not in employment, education, or training (NEET)) are defined as being economically inactive. This group faces a higher risk when entering the labour market than those individuals who are just unemployed. Those who neither work nor study are deprived of knowledge and experience that are needed to find a job in the future. In 2013, there were 91,000 young people aged 15-24 years in Sweden who were part of this group. Approximately half of the NEET group was unemployed at the same time. Administrative sources...