Abstract
In flexible labor markets, low-educated entrants are harmed by economic downturns, but the penalties are short-lived. High-educated youth are less adversely affected, but the penalties persist longer. It takes about ten years for young cohorts that enter the labor market during a downturn to catch up to cohorts that did not. In rigid labor markets, however, while low-educated entrants are better shielded in the short term, both low- and high-educated workers never make up their earnings losses. Macroeconomic stabilization policies should be complemented by policies that aim at combining more job flexibility with job security.
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