IDEAS home Printed from https://ideas.repec.org/p/hhs/ifauwp/2008_009.html
   My bibliography  Save this paper

Scars of recession: the long-term costs of the Finnish economic crisis

Author

Listed:
  • Verho, Jouko

    (Department of Economics, University of Helsinki)

Abstract

This study evaluates the long-term cost of unemployment in Finland by focusing on the deep recession period of the early 1990s. The number of plant closures increased sharply during the recession and the unemployment rate rose by more than 13 percentage points. In the analysis, prime working-age men who face unemployment due to plant closure are matched to those who remained employed during the recession. The average effect of being unemployed during the recession is estimated for a 6 year follow-up period. After 6 years, there is a 25% annual earnings penalty for being unemployed. Months in employment recover steadily after the recession but are still 10% lower after 6 years. The estimated wage loss is 14%.

Suggested Citation

  • Verho, Jouko, 2008. "Scars of recession: the long-term costs of the Finnish economic crisis," Working Paper Series 2008:9, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    • Handle: RePEc:hhs:ifauwp:2008_009
    as

    Download full text from publisher

    File URL: http://www.ifau.se/upload/pdf/se/2008/wp08-09.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Stefan Bender & Christian Dustmann & David Margolis & Costas Meghir, 1998. "Worker Displacement in France and Germany," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00370611, HAL.
    2. Gibbons, Robert & Katz, Lawrence F, 1991. "Layoffs and Lemons," Journal of Labor Economics, University of Chicago Press, vol. 9(4), pages 351-380, October.
    3. David Margolis, 1999. "Worker Displacement in France," Post-Print halshs-00370401, HAL.
    4. Jacobson, Louis S & LaLonde, Robert J & Sullivan, Daniel G, 1993. "Earnings Losses of Displaced Workers," American Economic Review, American Economic Association, vol. 83(4), pages 685-709, September.
    5. Gregg, Paul & Tominey, Emma, 2005. "The wage scar from male youth unemployment," Labour Economics, Elsevier, vol. 12(4), pages 487-509, August.
    6. Bruce C. Fallick, 1996. "A Review of the Recent Empirical Literature on Displaced Workers," ILR Review, Cornell University, ILR School, vol. 50(1), pages 5-16, October.
    7. Huttunen, Kristiina & Moen, Jarle & Salvanes, Kjell G., 2006. "How Destructive Is Creative Destruction? The Costs of Worker Displacement," IZA Discussion Papers 2316, Institute of Labor Economics (IZA).
    8. Burda, Michael C. & Mertens, Antje, 2001. "Estimating wage losses of displaced workers in Germany," Labour Economics, Elsevier, vol. 8(1), pages 15-41, January.
    9. Nordström Skans, Oskar, 2004. "Scarring effects of the first labour market experience: A sibling based analysis," Working Paper Series 2004:14, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    10. Lori G. Kletzer, 1998. "Job Displacement," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 115-136, Winter.
    11. Marcus Eliason & Donald Storrie, 2006. "Lasting or Latent Scars? Swedish Evidence on the Long-Term Effects of Job Displacement," Journal of Labor Economics, University of Chicago Press, vol. 24(4), pages 831-856, October.
    12. Stevens, Ann Huff, 1997. "Persistent Effects of Job Displacement: The Importance of Multiple Job Losses," Journal of Labor Economics, University of Chicago Press, vol. 15(1), pages 165-188, January.
    13. Gregg, Paul, 2001. "The Impact of Youth Unemployment on Adult Unemployment in the NCDS," Economic Journal, Royal Economic Society, vol. 111(475), pages 626-653, November.
    14. Alberto Abadie & Guido W. Imbens, 2006. "Large Sample Properties of Matching Estimators for Average Treatment Effects," Econometrica, Econometric Society, vol. 74(1), pages 235-267, January.
    15. Peter J. Kuhn (ed.), 2002. "Losing Work, Moving On: International Perspectives on Worker Displacement," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number lwmo, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Nilsen, Øivind A. & Reiso, Katrine Holm, 2011. "Scarring effects of unemployment," Discussion Paper Series in Economics 26/2011, Norwegian School of Economics, Department of Economics.
    2. Kristiina Huttunen & Jenni Kellokumpu, 2016. "The Effect of Job Displacement on Couples' Fertility Decisions," Journal of Labor Economics, University of Chicago Press, vol. 34(2), pages 403-442.
    3. Eliason, Marcus, 2011. "Assistant and auxiliary nurses in crisis times: earnings and employment following public sector job loss in the 1990s," Working Paper Series 2011:1, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    4. Mattia Filomena, 2021. "Unemployment Scarring Effects: A Symposium On Empirical Literature," Working Papers 453, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    5. Verho, Jouko, 2017. "Economic crises and unemployment persistence: Analysis of job losses during the Finnish 1990s recession," Working Papers 99, VATT Institute for Economic Research.
    6. Volker Rieke & Gerhard Bosch & Friedrich Hubert Esser & Klaus-Dieter Sohn & Sebastian Czuratis & Felix Rauner & Günter Lambertz, 2013. "Duale Ausbildung, ›Jugendgarantie‹ oder zusätzliche Hilfsfonds: Was tun gegen die Jugendarbeitslosigkeit in Europa?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 66(16), pages 03-24, August.
    7. Arja Jolkkonen & Pertti Koistinen & Arja Kurvinen & Liudmila Lipiäinen & Tapio Nummi & Pekka Virtanen, 2018. "Labour Market Attachment Following Major Workforce Downsizings: A Comparison of Displaced and Retained Workers," Work, Employment & Society, British Sociological Association, vol. 32(6), pages 992-1010, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ossi Korkeamäki & Jukka Appelqvist & Tomi Kyyrä, 2007. "Quantile Regression Estimates of the Earnings Losses of Displaced Workers," EcoMod2007 23900045, EcoMod.
    2. Mattia Filomena, 2021. "Unemployment Scarring Effects: A Symposium On Empirical Literature," Working Papers 453, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    3. Appelqvist, Jukka, 2007. "Wage and Earnings Losses of Displaced Workers in Finland," Discussion Papers 422, VATT Institute for Economic Research.
    4. Amynah Vanessa Gangji & Robert Plasman, 2007. "The Matthew effect of unemployment: how does it affect wages in Belgium," DULBEA Working Papers 07-19.RS, ULB -- Universite Libre de Bruxelles.
    5. Kyyrä, Tomi & Korkeamäki, Ossi, 2008. "A Distributional Analysis of Displacement Costs in an Economic Depression and Recovery," Discussion Papers 465, VATT Institute for Economic Research.
    6. Huttunen, Kristiina & Moen, Jarle & Salvanes, Kjell G., 2006. "How Destructive Is Creative Destruction? The Costs of Worker Displacement," IZA Discussion Papers 2316, Institute of Labor Economics (IZA).
    7. Schwerdt, Guido, 2011. "Labor turnover before plant closure: "Leaving the sinking ship" vs. "Captain throwing ballast overboard"," Labour Economics, Elsevier, vol. 18(1), pages 93-101, January.
    8. Yolanda Kodrzycki, 2007. "Using unexpected recalls to examine the long-term earnings effects of job displacement," Working Papers 07-2, Federal Reserve Bank of Boston.
    9. Kent Eliasson & Pär Hansson, 2016. "Are workers more vulnerable in tradable industries?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 152(2), pages 283-320, May.
    10. Carneiro, Anabela & Portugal, Pedro, 2006. "Earnings Losses of Displaced Workers: Evidence from a Matched Employer-Employee Data Set," IZA Discussion Papers 2289, Institute of Labor Economics (IZA).
    11. David S. Kaplan & Raymond Robertson & Gabriel Martínez González, 2005. "What Happens to Wages after Displacement?," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Spring 20), pages 197-242, January.
    12. Sandra Cavaco & Denis Fougère & Julien Pouget, 2013. "Estimating the effect of a retraining program on the re-employment rate of displaced workers," Empirical Economics, Springer, vol. 44(1), pages 261-287, February.
    13. Mattia Filomena & Isabella Giorgetti & Matteo Picchio, 2022. "Off To A Bad Start: Youth Nonemployment And Labor Market Outcomes Later In Life," Working Papers 466, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    14. Oliver Ruf, 2008. "Effects of Firm Size and Business Cycle on Earning Losses of Displaced Workers," IEW - Working Papers 366, Institute for Empirical Research in Economics - University of Zurich.
    15. Ortego-Marti, Victor, 2017. "Loss of skill during unemployment and TFP differences across countries," European Economic Review, Elsevier, vol. 100(C), pages 215-235.
    16. Marcus Eliason & Donald Storrie, 2003. "The Echo of Job Displacement," William Davidson Institute Working Papers Series 2003-618, William Davidson Institute at the University of Michigan.
    17. Arnaud Lefranc, 2002. "Labor Market Dynamics and Wage Losses of Displaced Workers in France and the United-States," THEMA Working Papers 2002-15, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    18. von Greiff, Jenny, 2009. "Displacement and self-employment entry," Labour Economics, Elsevier, vol. 16(5), pages 556-565, October.
    19. Fackler, Daniel & Müller, Steffen & Stegmaier, Jens, 2017. "Explaining wage losses after job displacement: Employer size and lost firm rents," IWH Discussion Papers 32/2017, Halle Institute for Economic Research (IWH).
    20. Stefan Bender & Till von Wachter, 2006. "In the Right Place at the Wrong Time: The Role of Firms and Luck in Young Workers' Careers," American Economic Review, American Economic Association, vol. 96(5), pages 1679-1705, December.

    More about this item

    Keywords

    Unemployment; plant closings;

    JEL classification:

    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhs:ifauwp:2008_009. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ali Ghooloo (email available below). General contact details of provider: https://edirc.repec.org/data/ifagvse.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.