Entering the labour market during recession and becoming exposed to unemployment in early career may not only affect the establishment of youth within the labour market temporarily and in a transitory manner, but may rather lead to long-lasting adverse consequences concerning future job prospects and labour market integration. Persisting consequences of employment instability and unemployment have come to be known in the literature as scarring effects. Explaining scarring, diverse demand- as well as supply-side mechanisms are thought to be at a play, which are not easily disentangled in their effects. In addition, the empirical investigation of scarring effects is complicated, as causal effects of unemployment on subsequent employment prospects cannot easily be identified. A cross-national comparative investigation of scarring effects is further limited by comparable data availability allowing for a separation of causal effects at an individual level.
This working paper considers the complexity concerning the explanation and investigation of scarring effects and sheds some light on the manifold mechanisms underlying scarring. It also deals with the methodological challenges in their investigation. A suggestion is made for a promising approach concerning an internationally comparative investigation of scarring effects of youth unemployment.