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

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Author Info
Oreopoulos, Philip () (University of Toronto)
Wachter, Till von () (Columbia University)
Heisz, Andrew () (Statistics Canada)

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Abstract

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 using matched university-employer-employee data from 1982 to 1999. The results are used to assess the role of job mobility and firm quality in the propagation of shocks for different groups in the labor market. We find that young graduates entering the labor market in a recession suffer significant initial earnings losses that, on average, eventually fade after 8 to 10 years. Labor market conditions at graduation affect firm quality and job mobility, which can account for 40-50% of losses and catch-up in our sample. We also document that higher skilled graduates suffer less from entry in a recession because they switch to better firms quickly. Lower skilled graduates are permanently affected by being down ranked to low-wage firms. These adjustment patterns are consistent with differential choices of intensity of search for better employers arising from comparative advantage and time-increasing search costs. 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.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3578.

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Length: 117 pages
Date of creation: Jul 2008
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Handle: RePEc:iza:izadps:dp3578

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Related research
Keywords: job search; hysteresis; college graduates; cost of recessions;

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Find related papers by JEL classification:
J62 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Job, Occupational and Intergenerational Mobility; Promotion
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Daniel G. Sullivan & Till von Wachter, 2006. "Mortality, mass-layoffs, and career outcomes: an analysis using administrative data," Working Paper Series WP-06-21, Federal Reserve Bank of Chicago. [Downloadable!]
  2. Giuliano, Paola & Spilimbergo, Antonio, 2009. "Growing Up in a Recession: Beliefs and the Macroeconomy," IZA Discussion Papers 4365, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  3. Jason M. Fletcher & Jody L. Sindelar, 2009. "Estimating Causal Effects of Early Occupational Choice on Later Health: Evidence Using the PSID," NBER Working Papers 15256, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Wachter, Till von & Bender, Stefan, 2007. "Do initial conditions persist between firms? : an analysis of firm-entry cohort effects and job losers using matched employer-employee data," IAB Discussion Paper 200719, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]. [Downloadable!]
  5. Michael Reiter, 2006. "Embodied Technical Change And The Fluctuations Of Wages and Unemployment," Economics Working Papers 980, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
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