The Consequences of Graduating in a Bad Economy

The working paper “The Long-Term Labor Market Consequences of Graduating from College in a Bad Economy” by assistant professor of economics Lisa Kahn was featured in a front page story in the Wall Street Journal on May 9, 2009. The article, “The Curse of the Class of 2009,” details how college graduates who enter the job market during the current recession will likely suffer lower wages for years to come.

In her research, Kahn tracked the wages of white men who graduated from undergraduate college programs before, during, and after the recession of the early 1980s, comparing how those who entered the workforce during a worse economy fared in the long run relative to those who graduated in better times. Kahn found that graduating in a bad economy has a long-lasting, negative effect on wages. For each percentage point increase in the unemployment rate, those who graduated during the recession earned 6 to 8% less in their first year of employment compared to their more fortunate counterparts. The effect decreased in magnitude by approximately a quarter of a percentage point each year after graduation. However, even 15 years out of school, the recession graduates earned 2.5% less.

Kahn also examined other labor market outcomes and found that the likelihood of finding a job did not differ significantly across groups, but the results suggest that those graduating in worse economies may take longer to find work. Those who graduated in the recession also had less prestigious jobs and stayed in those jobs slightly longer, which suggests that workers who graduate in a bad economy are unable to fully move into better jobs after the economy picks up. Recession-era graduates also went on to graduate school at higher rates, and those who did, did not suffer the same wage losses.