The scarring effect of unemployment in ten European countries : an analysis based on the ECHP.

This paper investigates the effect of unemployment on earnings for ten European countries. Using an harmonised database (ECHP), we estimate the impact of declared unemployment on individuals while taking account of attrition and unobserved individual heterogeneity. We find that the unemployment effect differs by country and gender. The wage penalty is greater for men than for women. It is also higher in the more flexible economies. We suggest that labour market institutions such as unemployment benefits and wage-setting institutions may be avenues of investigation to explain these differences.