Scandinavian Working Papers in Economics

Working Paper Series,
IFAU - Institute for Evaluation of Labour Market and Education Policy

No 2008:9: Scars of recession: the long-term costs of the Finnish economic crisis

Jouko Verho ()
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Jouko Verho: Department of Economics, University of Helsinki

Abstract: This study evaluates the long-term cost of unemployment in Finland by focusing on the deep recession period of the early 1990s. The number of plant closures increased sharply during the recession and the unemployment rate rose by more than 13 percentage points. In the analysis, prime working-age men who face unemployment due to plant closure are matched to those who remained employed during the recession. The average effect of being unemployed during the recession is estimated for a 6 year follow-up period. After 6 years, there is a 25% annual earnings penalty for being unemployed. Months in employment recover steadily after the recession but are still 10% lower after 6 years. The estimated wage loss is 14%.

Keywords: Unemployment; plant closings

JEL-codes: J64; J65

34 pages, June 3, 2008

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