Scandinavian Working Papers in Economics

Working Paper Series,
Uppsala University, Department of Economics

No 2004:14: Time Out of Work and Skill Depreciation

Per-Anders Edin () and Magnus Gustavsson ()
Additional contact information
Per-Anders Edin: Department of Economics, Postal: Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden
Magnus Gustavsson: Department of Economics, Postal: Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden

Abstract: This paper investigates the role of skill depreciation in the relationship between work interruptions and subsequent wages. Using a unique longitudinal dataset, the Swedish part of the International Adult Literacy Survey, we are able to analyze changes in literacy skills for individuals as a function of time out of work. In general, we find statistically strong evidence on a negative relationship between work interruptions and skills. Our analysis suggests that depreciation of general (literacy) skills is economically significant. Our estimates imply that a full year of non-employment is associated with skill losses that are equivalent to moving 5 percentiles down the skill distribution.

Keywords: Work interruptions; Skill depreciation; Unemployment; Wage differentials

JEL-codes: J13; J24; J31; J69

29 pages, September 28, 2004

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