Scars of recessions in a rigid labor market

• Published in: Labour economics Vol. 41; no. 41; pp. 162 - 176
• Main Authors: Cockx, Bart, Ghirelli, Corinna
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01-08-2016; Elsevier Science Ltd
• Subjects: Arbeitsmarktpolitik; Auswirkung; Belgien; Berufsanfänger; Berufseinmündung; Berufsverlauf; Beschäftigungseffekt; Beschäftigungssystem; Einkommenseffekt; Erwerbstätiger; Flandern; Graduating; Hoch Qualifizierter; Hochschulabsolvent; Institution; Kündigungsschutz; Labor economics; Labor market; Labor market rigidity; Lohnpolitik; Market entry; Mindestlohn; Minimum wage; Niedrig Qualifizierter; Recession; Recessions; Rezession; Scars; Studies; Unemployment; Wage differential; Wages & salaries; Working hours; Belgium; Scars; Recession; Graduating; Labor market rigidity
• ISSN: 0927-5371; 1879-1034
• DOI: 10.1016/j.labeco.2016.05.009

We study the impact of graduating in recessions in the Belgian labor market, where high minimum wages protect the low educated against wage losses but possibly reinforce the unemployment risk. By contrast, due to labor regulations, the high-educated can get stuck in low-wage jobs. We find that a typical recession leaves the wages of the low-educated unaffected, but reduces their working time and earnings by about 4.5% for up to twelve years after graduation. For the high-educated, working time is not persistently affected, but hourly wages and earnings are. This wage and earnings penalty increases with experience, and reaches roughly −6% ten years after labor market entry.
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•We study the long-term impact of graduating in a recession in a rigid labor market.•Hourly wage of low-educated is hardly affected, but working time is.•Working time of high-educated is not durably affected, while the hourly wage is.•After 10years earnings are still about 4.5% to 6% lower than without a recession.