and ignoring individual heterogeneity that exists prior to any unemployment spells, makes identification highly problematic. Arulampalam (2002) revisits the topic using the same data and again addresses the issues of initial conditions and individual heterogeneity but for different definitions of unemployment (unemployment with and without search) and finds the evidence for scarring to be robust to different definitions. Another three studies in Britain used data from the National Child Development Survey to investigate scarring‐ Narendranathan and Elias (1993), Gregg (2001) and Gregg and Tominey (2005). The later identify a wage scar from early unemployment in the magnitude of 13–21% at age 42. This corresponds to results for Britain from Gregory and Jukes (2001) that suggested a 10% long term wage penalty from unemployment that is long in duration (one year spells).

The evidence is less clear from the USA. Corcoran and Hill (1985), reject the scarring hypothesis using data from the Panel Study of Income Dynamics. In contrast, Jacobson, LaLonde and Sullivan (1993) found evidence of scarring using data from Pennsylvania. They identified a negative wage impact from job separation and subsequent unemployment particularly for high tenure workers. This is important because it suggests that human capital depreciation may be significant (as low tenure workers on average, should have less human capital to lose).

# **_2.3 Scarring in labor markets from certain types of employment_**

We begin this discussion of labor market scarring with consideration of self‐employment (as the literature is more substantial in this area than for other types of employment), before moving to consider non‐permanent and informal employment. Employment probability and wage scarring from periods of self‐employment may occur when the human capital implications of being in self‐employment are similar to that of being unemployed. That is, firm specific capital is not accumulated and some human capital that is specific to wage employment, such as the capacity to work well under the direction of a manager, may deteriorate (Williams, 2000). Secondly, failure in self‐employment may be taken as a signal by firms that a job seeker is of low productivity. Alternatively, it may be that valuable new skills are acquired during periods of self‐employment such as autonomy and the capacity to manage risk. The question of self‐employment scarring therefore needs to be answered empirically. However, identification of self‐employment scarring is complicated by the issues of individual heterogeneity and the self‐selection of the self‐employed.

Using data from the National Longitudinal Survey in the US, Evans and Leighton (1989) found that relatively poorer wage workers (unemployed workers, lower‐paid wage workers, and men who have changed jobs frequently) were more likely to enter self‐employment or to be self‐employed at a point in time, ceteris paribus. This does not imply scarring but is consistent with the idea that self‐employment is not being chosen because of its career effects but rather simply because it is the only available income generating option for many males. Also in the US, using the Panel Study of Income Dynamics (PSID) Bruce and Schuetze (2004) examine the effects of brief self‐employment experience on subsequent labor 6