Wednesday, October 29, 2008

The Short- and Long-Term Career Effects of Graduating in a Recession

In keeping with the recent theme on this blog of papers related to recession, I thought some readers may be interested in a NBER paper from 2006 entitled "The Short- and Long-Term Career Effects of Graduating in a Recession" (Oreopoulos, von Wachter and Heisz). One hypothesis is that labour market shocks (such as those occurring during a recession) can have persistent effects on individuals' future earnings.

The authors analyse the long-term effects of graduating in a recession on earnings and job mobility. The data they use is a large sample of Canadian college graduates and matched university-employer-employee data from 1982 to 1999. They find that young graduates entering the labor market in a recession suffer significant initial earnings losses --- that eventually fade, but only after 8 to 10 years. They also document that there are individual differences in how recession affects post-graduation labour market circumstances.

The Oreopoulos, von Wachter and Heisz paper brings to mind another NBER paper (from last year) by Oyer; it was entitled "The Making of an Investment Banker: Macroeconomic Shocks, Career Choice, and Lifetime Income". It used a survey of Stanford MBAs from the classes of 1960 to 1997 to analyse the relationship between the state of the stock market at graduation, initial job placement, and long-term labor market outcomes. We discussed it on the blog here.

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