Scarring effects of youth unemployment and informality : evidence from Argentina and Brazil

Abstract

This paper studies the effects of youth unemployment and informality on adult labor market outcomes in Argentina and Brazil. We propose an econometric strategy based on cross-cohort differences in youth labor market experiences in order to identify the effects of interest. The main findings indicate strong and significant scarring effects: cohorts exposed to higher levels of unemployment and informality in their youth fare systematically worse in the labor markets as adults. However, the persistence and wage penalty effects are mainly present in the early years of adulthood, and tend to dissipate with the passage of time. We also find that adverse effects are stronger for workers with lower skills. The main contribution of these results is to add a further dimension specific to developing and middle income countries – informality – to previous studies of unemployment scarring in advanced economies. JEL Classification: J24, J31, J64, O17