Unemployment Duration and the Relative Change in Individual Earnings: Evidence from Austrian Panel Data

Abstract: Using Austrian Social Insurance Records data, this paper analyses relative wage changes associated with spells of unemployment on an individual level. In particular, we investigate the effects of previous job duration, moves between industries , and unemployment duration on post unemployment earnings. In the estimation we take account of the simultaneity between unemployment duration and accepted wages and attempt to correct for the sample selectivity bias arising from wages being unobservable for those who leave the labor force. Our main findings are that (i) unemployment duration had a significant negative impact on subsequent wages both in the short run and over a medium term perspective with regard to changes in annual earnings; (ii) a move between industries resulted in the short run in substantial relative wage losses, but this effect disappeared over a horizon of one or two years; and (iii) we could not find a clear-cut impact of tenure on the previous job on earnings after unemployment.;