Scars of recessions in a rigid labor market

Abstract

We study the impact of graduating in recessions in the Belgian labor market, where high minimum wages protect the low educated against wage losses but possibly reinforce the unemployment risk. By contrast, due to labor regulations, the high-educated can get stuck in low-wage jobs. We find that a typical recession leaves the wages of the low-educated unaffected, but reduces their working time and earnings by about 4.5% for up to twelve years after graduation. For the high-educated, working time is not persistently affected, but hourly wages and earnings are. This wage and earnings penalty increases with experience, and reaches roughly −6% ten years after labor market entry.