Scarring: The Psychological Impact of Past Unemployment.

This paper considers the psychological impact of past unemployment. Using 11 waves of German panel data, we show that life satisfaction is lower not only for the current unemployed (relative to the employed), but also for those with higher levels of past unemployment. However, the negative well-being effect of current unemployment is weaker for those who have been unemployed more often in the past. The panel data also reveal some evidence that those suffering greater falls in well-being on entering unemployment are less likely to remain unemployed one year later. Together, these findings offer a psychological explanation of persistent unemployment. Copyright 2001 by The London School of Economics and Political Science