The Long-Term Labor Market Consequences of Graduating from College in a Bad Economy

This paper studies the labor market experiences of white-male college graduates as a function of economic conditions at time of college graduation. I use the National Longitudinal Survey of Youth whose respondents graduated from college between 1979 and 1989. I estimate the effects of both national and state economic conditions at time of college graduation on labor market outcomes for the first two decades of a career. Because timing and location of college graduation could potentially be affected by economic conditions, I also instrument for the college unemployment rate using year of birth (state of residence at an early age for the state analysis). I find large, negative wage effects of graduating in a worse economy which persist for the entire period studied. I also find that cohorts who graduate in worse national economies are in lower-level occupations, have slightly higher tenure and higher educational attainment, while labor supply is unaffected. Taken as a whole, the results suggest that the labor market consequences of graduating from college in a bad economy are large, negative and persistent.

[1]  D. Neumark,et al.  Order from Chaos? The Effects of Early Labor Market Experiences on Adult Labor Market Outcomes , 1997 .

[2]  Paul Oyer,et al.  Initial Labor Market Conditions and Long-Term Outcomes for Economists , 2006 .

[3]  D. Ellwood.  Teenage Unemployment: Permanent Scars or Temporary Blemishes? , 1979 .

[4]  Michael Waldman,et al.  Task-Specific Human Capital , 2004 .

[5]  Richard L. Simpson,et al.  Occupations and Social Status , 1962 .

[6]  Derek A. Neal.  The Complexity of Job Mobility Among Young Men , 1998 .

[7]  J. Dinardo,et al.  The Effect of Implicit Contracts on the Movement of Wages Over the Business Cycle: Evidence from Micro Data , 1991, Journal of Political Economy.

[8]  James Peoples.  Regulatory reform and labor markets , 1998 .

[9]  Dropout and Enrollment Trends in the Post-War Period: What Went Wrong in the 1970s? , 2000 .

[10]  Andrew J. Oswald,et al.  An Introduction to the Wage Curve , 1995 .

[11]  Lawrence F. Katz,et al.  Sustaining U.S. Economic Growth , 2003 .

[12]  Alan L. Gustman,et al.  The Impact of Wages and Unemployment on Youth Enrollment and Labor Supply , 1981 .

[13]  D. Wise,et al.  The Youth Labor Market Problem: Its Nature, Causes, and Consequences , 1982 .

[14]  Job Durations , Match Quality and the Business Cycle : What We Can Learn from Firm Fixed E ¤ ects , 2008 .

[15]  Andrew Heisz,et al.  The Short- and Long-Term Career Effects of Graduating in a Recession: Hysteresis and Heterogeneity in the Market for College Graduates , 2006, SSRN Electronic Journal.

[16]  Boyan Jovanovic.  Job Matching and the Theory of Turnover , 1979, Journal of Political Economy.

[17]  H. Peters,et al.  Schooling Choices and Demographic Cycles. , 1992 .

[18]  Brenda White,et al.  DEPARTMENT OF LABOR , 2006 .

[19]  J. Dinardo,et al.  Diverging Male Wage Inequality in the United States and Ganada, 1981–1988: Do Institutions Explain the Difference? , 1997 .

[20]  David Neumark,et al.  Youth Labor Markets in the United States: Shopping Around vs. Staying Put , 2002, Review of Economics and Statistics.

[21]  Audra J. Bowlus.  Matching Workers and Jobs: Cyclical Fluctuations in Match Quality , 1995, Journal of Labor Economics.

[22]  Paul Oyer,et al.  The Making of an Investment Banker: Macroeconomic Shocks, Career Choice, and Lifetime Income , 2006 .

[23]  Paul J. Devereux,et al.  The Importance of Obtaining a High-Paying Job , 2002 .

[24]  R. Topel,et al.  Job Mobility and the Careers of Young Men , 1988 .

[25]  Otis Dudley Duncan,et al.  A socioeconomic index for all occupations. , 1996 .

[26]  George P. Baker,et al.  The Wage Policy of a Firm , 1994 .

[27]  David Card,et al.  Deregulation and Labor Earnings in the Airline Industry , 1996 .

[28]  Boyan Jovanovic,et al.  Firm-specific Capital and Turnover , 1979, Journal of Political Economy.

[29]  David Laibson,et al.  Estimating Discount Functions with Consumption Choices Over the Lifecycle , 2007 .

[30]  The Short- and Long-Term Career Effects of Graduating in a Recession: Hysteresis and Heterogeneity in the Market for College Graduates , 2006 .

[31]  David H. Autor,et al.  Changes in the Wage Structure and Earnings Inequality , 1999 .