Working Paper: CEPR ID: DP13222
Authors: Hannes Schwandt; Till Von Wachter
Abstract: This paper studies the differential persistent effects of initial economic conditions for labor market entrants in the United States from 1976 to 2015 by education, gender, and race using labor force survey data. We find persistent earnings and wage reductions especially for less advantaged entrants that increases in government support only partly offset. We confirm the results are unaffected by selective migration and labor market entry by also using a double-weighted average unemployment rate at labor market entry for each birth cohort and state-of-birth cell based on average state migration rates and average cohort education rates from Census data.
Keywords: labor market conditions at graduation; long-term cost of recession; poverty; social programs
JEL Codes: E32; I14; I23; I32; J22; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Entering the labor market during periods of high unemployment (J68) | Substantial initial reductions in earnings (J32) |
| Substantial initial reductions in earnings (J32) | Earnings losses persist for at least ten years (J17) |
| A moderate recession causing a three-point rise in unemployment (E65) | Cumulative earnings loss of approximately 60% of a year’s earnings (J17) |
| Employment reductions and wage reductions (J63) | Earnings losses (J17) |
| Adverse initial conditions (C62) | Varying effects among different demographic groups (J79) |
| Higher earnings losses (J17) | Greater increases in probability of receiving assistance from programs like SNAP and Medicaid (I38) |