Does unemployment leave persistent scars on earnings? Evidence from the Swedish twin registry

Abstract: Does unemployment leave persistent scars on earnings? The European debt crisis has pushed unemployment rates to extraordinary levels in various parts of Europe. This raises important questions about the long term consequences of the crises. Previous research conducted in the USA, Great Britain and Sweden has provided strong evidence for lasting scars inflicted on unemployed workers wages. This paper estimates the long term impact of unemployment on earnings using high quality data on 17,184 twins. A control for twin pair specific heterogeneity is introduced by exploiting the twin dimension through the fixed effects estimator. An additional year of unemployment was found to decrease annual earnings by approximately 5%. These results are consistent with those obtained in previous studies conducted in the USA, Great Britain and Sweden.