Is There Any Wage Loss During the Period of Unemployment Among Older Workers?

Abstract

Using the data from the Survey of Income and Program Participation (SIPP) between 1996 and 2013, the paper empirically estimates the effect of duration of unemployment on reemployment wages for workers 40 years of age and older and decomposes the given effect into the stigma and skill depreciation effects. The findings indicate that a one month increase in the duration of unemployment reduces reemployment wages by 0.9%. The observed reduction in reemployment wages for older workers is mainly explained by the stigma effect ensued from prolonged unemployment spells. The simulation exercise also suggests on the substantial effect of the stronger state age discrimination law on durations of unemployment and a very modest effect on wages; while, the 1983 Social Security reforms had a small impact on durations of unemployment with no impact on wages of older workers.