The Short- and Long-Term Career Effects of Graduating in a Recession: Hysteresis and Heterogeneity in the Market for College Graduates

74 Pages Posted: 31 Jan 2007 Last revised: 23 Sep 2010

See all articles by Philip Oreopoulos

Philip Oreopoulos

University of Toronto - Department of Economics; National Bureau of Economic Research (NBER); Canadian Institute for Advanced Research (CIFAR)

Till von Wachter

Columbia Business School - Economics Department; IZA Institute of Labor Economics

Andrew Heisz

Government of Canada - Analytical Studies Branch

Multiple version iconThere are 3 versions of this paper

Date Written: April 2006

Abstract

The standard neo-classical model of wage setting predicts short-term effects of temporary labor market shocks on careers and low costs of recessions for both more and less advantaged workers. In contrast, a vast range of alternative career models based on frictions in the labor market suggests that labor market shocks can have persistent effects on the entire earnings profile. This paper analyzes the long-term effects of graduating in a recession on earnings, job mobility, and employer characteristics for a large sample of Canadian college graduates with different predicted earnings using matched university-employer-employee data from 1982 to 1999, and uses its results to assess the importance of alternative career models. We find that young graduates entering the labor market in a recession suffer significant initial earnings losses that eventually fade, but after 8 to 10 years. We also document substantial heterogeneity in the costs of recessions and important effects on job mobility and employer characteristics, but small effects on time worked. These adjustment patterns are neither consistent with a neo-classical spot market nor a complete scarring effect, but could be explained by a combination of time intensive search for better employers and long-term wage contracting. All results are robust to an extensive sensitivity analysis including controls for correlated business cycle shocks after labor market entry, endogenous timing of graduation, permanent cohort differences, and selective labor force participation.

Suggested Citation

Oreopoulos, Philip and von Wachter, Till and Heisz, Andrew, The Short- and Long-Term Career Effects of Graduating in a Recession: Hysteresis and Heterogeneity in the Market for College Graduates (April 2006). NBER Working Paper No. w12159. Available at SSRN: https://ssrn.com/abstract=960440

Philip Oreopoulos (Contact Author)

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S 3G7
Canada

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Canadian Institute for Advanced Research (CIFAR)

180 Dundas Street West, Suite 1400
Toronto, Ontario
Canada

Till Von Wachter

Columbia Business School - Economics Department ( email )

420 West 118th Street
New York, NY 10027
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Andrew Heisz

Government of Canada - Analytical Studies Branch ( email )

120 Parkdale Avenue
24th Floor, R.H. Coats Building
Ottawa, Ontario K1A 0T6
Canada
613-951-3748 (Phone)
613-951-5403 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
44
Abstract Views
1,074
PlumX Metrics