Study On The “Scarring Effect” Of Labor Market Under Economic Volatility

“Employment is pivotal to people’s wellbeing”.The Macroeconomic conditions are closely related to the labor market,which may affect workers’ career choices,income levels,and even their long-term career development.It is of great practical significance to examine the mechanism of macroeconomic conditions on the labor market.The existing literature on the labor market microeconomic effects of the macroeconomic conditions is rarely discussed in developing countries.This study is based on the individual level to make a supplement to understand the employment effects of Chinese macroeconomic fluctuations.Matching China Labor-force Dynamics Survey(CLDS)data and macro data of economic growth,the paper explores how the initial economic condition affect long-term earning when individual entering labor market for the first time through the information of individual work experience.And this paper examines the heterogeneity of this influence among individuals with different characteristics,the internal mechanism of this influence,and the role of labor market institutional environment and employment support policy.The result of the empirical analysis shows that,firstly,compared with individuals who entered the labor market during the economic downturn,the current income of individuals who entered the labor market during the economic downturn decreased by about eight percentage points,and with a one percent decrease of the macro economic growth in individual’s first job start year,the current individual income will lower about two percent,and the effect lasts for fifteen years,which indicate that there is a significant “scarring effect” in the labor market.Secondly,the result of the breadth of effects shows that,the initial economic growth has a significant and continuous impact on individual wages,household income,working hours.Thirdly,the result of the heterogeneity analysis shows that,based on individual characteristics,the individual including male,a college degree or higher,and earning a relatively low income,is hit more terribly by the initial macroeconomic condition;based on labor market characteristics,the individual with working out of the system or having rural household registration,is more susceptible to the initial macroeconomic conditions.Fourthly,The main impact mechanism of unfavorable initial macroeconomic conditions on individual income is that it reduces the quality of the individual’s first job,and the other is that it limits the opportunities for individual job adjustment.Fifthly,The institutional environment and employment support policies can play a certain buffer role in the impact of initial macroeconomic conditions on individual income.If labor market institutional environment in the place where the individual’s first job started is worse,his current income is more susceptible to the initial macroeconomic conditions,and receiving unemployment insurance funds will have a certain mitigation effect on the initial macroeconomic conditions.Finally,based on the research results,it is proposed that relevant government departments should stabilize short-term macroeconomic conditions,improve the accuracy of employment policies,promote the reform of the household registration system and break the division of unit systems,establish job search and skills training platform,improve the public employment service system,improve the marketization level of the labor market,and improve the social security system.