Temporary Layoffs and Long-run Labour Market Scarring: Evidence from Austria

Temporary layoffs – employment separations followed by recall to the same employer – are widely used to buffer short-term demand fluctuations, yet their long-term worker consequences remain poorly understood. Using Austrian administrative data and propensity-score matching, we estimate their long-run effects by comparing workers experiencing short, non-seasonal interruptions during their first employment year with similar workers whose employment continues uninterrupted over the same first-year period. Outcomes are measured from the second year onward. Over ten years, affected workers accumulate about 3.5 months less employment and three months more unemployment, while cumulative earnings decline by more than 6,000 €. Monthly earnings during employment are also slightly lower, providing no evidence of compensating wage differentials. The results indicate substantial worker welfare costs and fiscal externalities and suggest that current institutional arrangements may encourage firms to shift adjustment costs to workers and the unemployment insurance system.