The Class of 2010’s Job Market, Part III

Though there is some dispute over the how bad, eaxctly, the American job market is looking, there is little dispute that graduating into a recession – as the classes of 2009 and 2010 have done – can have long-term effects on earnings and psychology.

Earlier this year, The Atlantic published an excellent look at the sociological and microeconomics effects of the Great Recession on young people and other specific demographics. Young people who graduate college into a recession appear to earn less overtime compared to their peers that graduate before or after the economic troubles:

. . . In fact a whole generation of young adults is likely to see its life chances permanently diminished by this recession. Lisa Kahn, an economist at Yale, has studied the impact of recessions on the lifetime earnings of young workers. In one recent study, she followed the career paths of white men who graduated from college between 1979 and 1989. She found that, all else equal, for every one-percentage-point increase in the national unemployment rate, the starting income of new graduates fell by as much as 7 percent; the unluckiest graduates of the decade, who emerged into the teeth of the 1981–82 recession, made roughly 25 percent less in their first year than graduates who stepped into boom times.

But what’s truly remarkable is the persistence of the earnings gap. Five, 10, 15 years after graduation, after untold promotions and career changes spanning booms and busts, the unlucky graduates never closed the gap. Seventeen years after graduation, those who had entered the workforce during inhospitable times were still earning 10 percent less on average than those who had emerged into a more bountiful climate. When you add up all the earnings losses over the years, Kahn says, it’s as if the lucky graduates had been given a gift of about $100,000, adjusted for inflation, immediately upon graduation—or, alternatively, as if the unlucky ones had been saddled with a debt of the same size.

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