Entering the labour market during a pandemic: scarring effects and youth unemployment

This research aims to investigate the consequences of the Covid-19 pandemic for labour market entrants, in particular the scarring effects on university graduates and the impact on youth unemployment. Macroeconomists have described the pandemic-driven economic shocks as Keynesian supply shocks: the supply-driven changes in aggregate demand are larger than the supply shocks themselves resulting in shutdowns, massive layoffs and firm exits (Guerrieri et al 2020). Previous empirical studies found that graduating from university in a bad economy or entering the labour market during a recession harms an individual’s labour market outcomes, both in terms of future employment and wage prospects (Kahn 2009; Gregg and Tominey 2004). The negative impact often extends also to skill-loss and affects the decision to increase human capital investments. In this paper, we will explore the interplay between the heterogeneity in labour market scarring and the tax and transfer system. We are also particularly interested in studying whether and how parental income, which constitutes fundamental insurance factors (Cribb et al 2017), and the informal sector tend to reduce the magnitude of the scarring effects on employment and earnings. To address this point, we will collect individual survey data as well as firm-level data for a broad set of countries in Europe, North America, and Latin America.