Scarred for life: Lasting consequences of unemployment and informal self-employment

The scarring theory predicts that the effect of present unemployment will potentially last for the individual’s entire remaining working lifetime. This paper investigates how self-employment in the informal sector, rather than unemployment per se, influences the scarring effects in Indonesia, where...

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Bibliographic Details
Published in:Economic analysis and policy 2021-06, Vol.70, p.206-219
Main Authors: Pritadrajati, Dyah S., Kusuma, Anggita C.M., Saxena, Sweta C.
Format: Article
Language:English
Subjects:
Human capital
Scarring effect
Self-employment
Unemployment
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Summary:The scarring theory predicts that the effect of present unemployment will potentially last for the individual’s entire remaining working lifetime. This paper investigates how self-employment in the informal sector, rather than unemployment per se, influences the scarring effects in Indonesia, where informality is prevalent. It finds that the scarring effect due to previous unemployment is more observable among senior workers, while that due to previous self-employment is more significant among young workers aged 25–34 years. This indicates limited opportunity for human capital accumulation in self-employment and/or use of this information as an indicator of low productivity by employers.
ISSN:0313-5926
DOI:10.1016/j.eap.2021.02.009