The scars of unemployment

Job search online14 April 2011

One in five of all 16 to 24-year-olds are now unemployed, according to the figures from the Office for National Statistics. The number of 16 to 24-year-olds out of work rose to 963,000 in the three months to February, while the total number of unemployed went down by 17,000.

Despite the difficult economic situation, figures from Understanding Society, the world largest household panel study, show that almost two-thirds of the unemployed expect their financial situation to improve in the next year.

Previous research by Paul Gregg and Jonathan Wadsworth at the Centre for Economic Performance (CEP) indicates that employment rates during 2008-2009 remained higher than expected compared to previous recessions. However, they note that "as government support for the economy is scaled back and productivity growth remains low, it may be that it will take a long time for employment to return to levels last seen before the recession".

Another CEP report, by Pascal Michaillat, examines how job shortages and 'matching friction' drive unemployment during recessions. He finds that matching friction – the costly process of matching vacancies with unemployed workers – has little impact on unemployment, which instead is driven largely by job shortages.

The health effects of unemployment have been studied by several researchers. If unemployment continues to rise or falls only slowly in the recovery, it is a particular worry because of the 'scarring effects' of joblessness, which can persist for a long time in an individual's life.

Simon Burgess and colleagues at the Centre for Market and Public Organisation (CMPO) have examined whether unemployment early in the career influences later employment prospects, looking at the impact of the early 1980s recession. Rather than finding scarring effects for all unemployed, the researchers found small positive effects on later unemployment of early-career unemployment for the unskilled, and small negative effects for the more skilled.

Another CMPO study examines the consequence of youth unemployment for wages up to 20 years later. It finds that youth unemployment imposed a sizeable wage ‘penalty’ (lower earnings), followed by substantial recovery over the next ten years - but only if the individual avoided further periods of unemployment.

Research by Ellen Flint at the International Centre for Lifecourse Studies (ICLS) shows that both unemployed and insecurely employed people have worse mental health than those with secure jobs. High overall levels of joblessness and insecure employment may therefore create a substantial increase in the mental health burden in the population.

Unemployment is associated with a higher risk of mortality across the years of working life. Using data from the ONS Longitudinal Study of England and Wales, Bola Akinwale at the ICLS examined the effect of long term unemployment on health around State Pension Age. The findings show that certain types of non-employment tend to be detrimental for health.