The Effect of an Early Career Recession on Schooling and Lifetime Welfare

35 Pages Posted: 20 Aug 2018

See all articles by Naijia Guo

Naijia Guo

The Chinese University of Hong Kong (CUHK)

Date Written: August 2018

Abstract

This article evaluates the lifetime welfare and labor market consequences of experiencing a recession during youth, using a directed search equilibrium model with heterogeneous agents and aggregate shocks. In particular, the model allows for endogenous schooling decisions over the business cycles. The counterfactual analysis shows that experiencing the 1981–82 recession in youth causes a 1.6%–2.3% loss in lifetime welfare. Endogenizing the schooling decision avoids overestimation of welfare loss because of the selection effect and the human capital effect. I also decompose lifetime wage changes into different channels: changes from schooling, work experience, and job mobility.

Suggested Citation

Guo, Naijia, The Effect of an Early Career Recession on Schooling and Lifetime Welfare (August 2018). International Economic Review, Vol. 59, Issue 3, pp. 1511-1545, 2018, Available at SSRN: https://ssrn.com/abstract=3233212 or http://dx.doi.org/10.1111/iere.12312

Naijia Guo (Contact Author)

The Chinese University of Hong Kong (CUHK) ( email )

Shatin, N.T.
Hong Kong
Hong Kong

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