June 2013

IZA DP No. 7440: The Scarring Effects of Unemployment, Low Pay and Skills Under-utilisation in Australia Compared

published in: Applied Economics, 2015, 47(23), 2413-2429

There is a substantial literature on the scarring effects of unemployment on future employment prospects and a smaller one on the scarring effects of low pay, but the possibility that skills mismatch in the form of skills under-utilisation, may also have similar detrimental effects, has not previously been considered. This paper uses the first ten waves of the HILDA survey data to investigate the inter-related dynamics of unemployment, low pay and skills under-utilisation in Australia, focussing on differences by gender and educational pathways. It shows that skills under-utilisation also exhibits scarring effects, in addition to earlier evidence on wage penalties and reduced job satisfaction.