The impact of labor market entry conditions on initial job assignment and wages

We estimate the effects of labor market entry conditions on wages for male individuals first entering the Austrian labor market between 1978 and 2000. We find a large negative effect of unfavorable entry conditions on starting wages and a sizable negative long-run effect. Our preferred estimates imply a decrease in starting wages by about 0.9 % and a lifetime loss in wages of about 1.3 % for an increase in the initial local unemployment rate by one percentage point. We show that poor entry conditions are associated with lower quality of a worker’s first employer and that the quality of workers’ first employer explains as much as three-quarters of the observed long-run wage effects resulting from poor entry conditions. Moreover, wage effects are much more persistent for blue-collar workers because some of them appear to be permanently locked in into low-paying jobs/tasks.