Scars of the job market “ice-age”

Abstract

Abstract Existing studies found that entering the labor market during a recession has persistent negative effects—the scarring effects—on employment and earnings for Japanese men. The cohorts who entered the labor market during the prolonged recession between 1993 and 2004 are called “the ice-age cohorts,” and the persistent gap between them and older cohorts who entered the labor market during the bubble economy is often interpreted as the scarring effect of business cycle conditions at entry. However, the existing studies in Japan use data covering cohorts who enter the labor market in the 1990s or earlier. Motivated by the lack of empirical evidence with updated data, this article revisits the scarring effects of a recession at labor market entry on employment and earnings using data covering graduation cohorts 1984–2013. Younger cohorts who enter the labor market during the recovery do not earn more or enjoy more stable employment than the cohorts who enter the bottom of the ice-age, and that the effects of unemployment rate at entry on employment and earnings are no longer statistically significant for cohorts who enter the labor market after the job market ice-age. I also discuss potential factors that may have weakened scarring effects.