Getting a Job, Again: Does Unemployment Scar for Life?

Tamkinat Rauf , Stanford University

Previous research suggests that unemployment leaves permanent “scars” on psychological wellbeing, which remain even after people get reemployed. However, these findings are based on data that systematically over-weights long-term and frequent unemployment and on models that are potentially mis-specified. In this paper, I use monthly employment data from the Panel Study of Income Dynamics (PSID) to construct complete employment histories of prime working age Americans for a 15-year period. Using distributed fixed effects models to account for the temporal relationships between wellbeing and employment transitions, I find that while wellbeing declines during unemployment, individuals recover to pre-unemployment levels within 2-3 years of reemployment. I replicate the analysis using data on a younger cohort and with different measures of subjective wellbeing and find consistent results.

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 Presented in Session 105. Short- and Long-Run Effects of Unemployment on Workers and Their Children