This study estimates the potential scarring effects associated with early economic inactivity of young people in New Zealand. We initially define ‘economic inactivity’ as occurring when an individual is not enrolled in education or training, and not working in the labour market. Two basic variations on this definition are also considered: (i) excluding those living with a dependent child; and (ii) including those in part-time education, training or work as inactive. The term ‘scarring’ refers to the effects of this early economic inactivity on subsequent labour market outcomes. In this study, we examine the extent to which economic inactivity at ages 16, 18 and 21 influence the probability of being economically inactive at age 25, once detailed measures of personal and family background characteristics are held constant.
Data from the Christchurch Health and Development Study (CHDS) are used in this study. The CHDS provides multiple observations on possible inactivity from three interviews during the school-to-work transition period. It also contains extensive information on the family backgrounds, academic achievements and school characteristics for this cohort of subjects born in Canterbury hospitals in 1977. Both the range and quality of these independent variables are key features of this study. Their inclusion as explanatory variables in the regressions allows us to control for heterogeneity that might otherwise bias our estimates of these scarring effects.
Purpose
The primary goal of this study is to measure the potential ‘scarring effects’ from the economic inactivity of young people in New Zealand. The hypothesis is that an early experience of economic inactivity will directly increase the probability that an individual will experience bouts of economic inactivity in the future.