LONG-TERM CONSEQUENCES OF YOUTH UNEMPLOYMENT

Men in the United States who spend time out of work during their youth tend to be employed less and earn lower wages in their adult years. Why? Is this because the state of being out of work as a youth causes workers to earn less and work fewer weeks later in life? Or is it because individuals who work fewer weeks during youth have personal traits that lower their probability of employment and their wages during both youth and adulthood? Researchers refer to the first possible explanation as state dependence and call the second explanation heterogeneity. Using successive observations of the same people over time from the National Longitudinal Survey of Youth, this paper identifies a causal relationship (state dependence) between early employment experience and employment and wages ten years later among high school graduates and individuals with higher measured ability but not among high school dropouts or those with low measured ability. Previous research on this topic has not examined whether the impact of state dependence varies with schooling and measured ability. Among those who are affected by state dependence, those who as youths experience especially long periods of unemployment are particularly prone to long-term effects on future wages and employment