This paper analyses the short-run effects of the unemployment rate at the time of graduation on the transition into employment.
The empirical analysis is based on monthly data on tertiary education graduates in 19 European countries covering 2004–2017 from the European Union Statistics on Income and Living Conditions (EU-SILC) survey. Our methodology combines a Cox proportional hazards model with a two-stage residual inclusion approach.
We find that a one percentage point increase in the unemployment rate reduces the hazard rate of transitioning from unemployment into employment by 6%. Consistent with evidence on cross-country differences in labour market rigidity, we find that the effect is stronger in Southern European countries. Within this group, the effect is almost entirely due to negative effects on female graduates.
While the long-run effects of the conditions at the time of labour market entry have been widely studied, relatively little is known about their effects in the short run. This is partly due to the use of annual data in the extant literature. This gap in the literature is important since it is well established that unemployment at the beginning of an individual's career can have long-term “scarring” effects.
