Scars of Recession: The long-term costs of Finnish economic crisis∗

This study evaluates the long-term cost of unemployment in Finland by focusing on the deep recession period of the early 1990s. The number of plant closures increased sharply during the recession and the unemployment rate rose over 13 percentage points. In the analysis, prime working age men who face unemployment due to plant closure are matched on those who remained employed during the recession. The average e ect of being unemployed during the recession is estimated for a 6 year follow-up period. After 6 years, annual earnings show a 25% penalty for being unemployed. Months in employment recover steadily after the recession but are still at a 10% lower level after 6 years. The estimated monthly earnings loss is 14%. JEL: J65, J64