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The Effect Of An Early Career Recession On Schooling And Lifetime Welfare

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  • Naijia Guo

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.

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  • Naijia Guo, 2018. "The Effect Of An Early Career Recession On Schooling And Lifetime Welfare," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 59(3), pages 1511-1545, August.
    • Handle: RePEc:wly:iecrev:v:59:y:2018:i:3:p:1511-1545
    DOI: 10.1111/iere.12312
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    Cited by:

    1. Yang, Guanyi & Casner, Ben, 2021. "How much does schooling disutility matter?," Research in Economics, Elsevier, vol. 75(1), pages 87-95.
    2. Jiyeon Kim, 2019. "Skill-Biased Technological Change, Inequality, and the Role of Retraining," Working Paper 7116, Department of Economics, University of Pittsburgh.
    3. Forsythe, Eliza & Wu, Jhih-Chian, 2021. "Explaining Demographic Heterogeneity in Cyclical Unemployment," Labour Economics, Elsevier, vol. 69(C).

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