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Why Don’t Firms Hire Young Workers During Recessions?
[Real wages and the business cycle]

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  • Eliza Forsythe

Abstract

Recessions are known to be particularly damaging to young workers’ employment outcomes. I find that during recessions the hiring rate falls faster for young workers than for more experienced workers. I show that this cannot be explained by the composition of jobs or workers’ labour supply decisions, and I conclude that firms preferentially hire experienced workers during periods of high unemployment. I develop a new model of cyclical upgrading that relaxes the classic assumptions of exogenous firm size and rigid wages. I show that this model predicts larger log wage decreases during recessions for young workers than for experienced workers, a prediction that is supported by the data. I conclude that policymakers should consider extending unemployment insurance coverage during recessions to new labour market entrants.

Suggested Citation

  • Eliza Forsythe, 2022. "Why Don’t Firms Hire Young Workers During Recessions? [Real wages and the business cycle]," The Economic Journal, Royal Economic Society, vol. 132(645), pages 1765-1789.
    • Handle: RePEc:oup:econjl:v:132:y:2022:i:645:p:1765-1789.
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    References listed on IDEAS

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    Cited by:

    1. Saltiel, Fernando & Tuttle, Cody, 2022. "Business Cycles and Police Hires," IZA Discussion Papers 15665, Institute of Labor Economics (IZA).

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