The Long-Term Effects of
Dr. Thomas A. Mroz and Dr. Timothy H. Savage
University of North Carolina, Chapel Hill and Welch Consulting Economists A STUDY BY THE EMPLOYMENT POLICIES INSTITUTE October 2001
he Employment Policies Institute (EPI) is a nonprofit
research organization dedicated to
studying public policy issues surrounding employment
growth. In particular, EPI research focuses on
issues that affect entry-level employment. Among
other issues, EPI research has quantified the impact
of new labor costs on job creation, explored the
connection between entry-level employment and
welfare reform, and analyzed the demographic distribution
of mandated benefits. EPI sponsors nonpartisan
research that is conducted by independent
economists at major universities around the country.
Dr. Thomas A. Mroz is Professor of Economics at the University of North Carolina at Chapel Hill and a Fellow at the Carolina Population Center. He is also a member of the steering committee for UNC’s Institute for Research in Social Science. His interests include labor economics, applied econometrics and economic demography. Dr. Mroz’s research has appeared in leading economic journals such as the Journal of Econometrics, Econometrica and The Journal of Economic Literature. He received his Ph.D. from Stanford University in 1984.
Dr. Timothy H. Savage is a Senior Economist for Welch Consulting Economists in Washington, D.C. Dr. Savage also serves as a reviewer for the journal Economic Inquiry. He received his Ph.D. in Economics from University of North Carolina at Chapel Hill in 1999.
The era of high employment has taken a sharp
downward turn. The U.S. economy was cooling
rapidly even before terrorism entered the picture.
Employee layoffs are now measured in the hundreds
of thousands. Many of these employees were
entry-level workers just starting their careers. The
Labor Department’s statistics on teenage and
young adult employment reflect a substantial rise
in unemployment rates.
With unemployment rising in nearly every
community, there is a compelling question before
us: what are the long-term effects of unemployment
spells? This is a difficult but very important
question, particularly when shaping policies that
may create unemployment among young workers.
The effects of early unemployment can last
much longer than many recognize. In fact, the
effects of even relatively brief periods of unemployment
can be felt (and measured) for years,
The range of policies that could lead to unemployment
among young workers is fairly easy to
identify. Many policies that increase the cost of
employing entry-level workers either have a proven
record of causing job loss (e.g., minimum wage
hikes) or carry clear risks of undermining employment
levels (e.g., mandated benefits, increased payroll
taxes, etc.). Other potential culprits could
include tax, expenditure and monetary policies that
cause unemployment to rise. It is well known that
young people have the highest unemployment
rates and their labor market success is quite sensitive
to the state of the overall economy.
In this new research, Dr. Thomas A. Mroz
of the University of North Carolina at Chapel
Hill and Dr. Timothy Savage of Welch Consulting
Economists show that policies causing youth
unemployment can harm young adults for several
years into the future. Far from being a fleeting
annoyance, early unemployment has measurable,
persistent effects that can be linked to the
stagnation of human capital that occurs when an
individual is not working, in training or in school.
Using the National Longitudinal Survey of Youth
(NLSY) Drs. Mroz and Savage study young men
and their labor market reactions over time. The
NLSY tracked the employment, education and
demographic status of young men from the ages
of 14 to 19 beginning in 1979 through 1993.
Several factors describing the sample...
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