Wage scarring among unlucky European cohorts

This paper examines how starting one’s career in a weak labour market affects future labour market outcomes using data from 13 European countries. Income losses, so called scarring effects, are found to be solely levied on college graduates. For every percentage point increase in the national unemployment rate at graduation, college graduates incur wage penalties of 2% one year later. These penalties are over 1% for the next eight years but are zero by year ten. During the Great Recession, college graduates in countries who experienced harsh sovereign debt crises were particularly affected. In Portugal, Italy, Ireland, Greece and Spain new graduates with a college education faced wage losses of between 12 and 23% in each of the first ten years of their career.