Working Paper: NBER ID: w20531
Authors: Joseph G. Altonji; Lisa B. Kahn; Jamin D. Speer
Abstract: We analyze the early labor market outcomes of U.S. college graduates from the classes of 1974 to 2011, as a function of the economic conditions into which they graduated. We have three main findings. First, poor labor market conditions substantially disrupt early careers. A large recession at time of graduation reduces earnings by roughly 10% in the first year, for the average graduate. The losses are driven partially by a reduced ability to find employment and full-time work and partially by a roughly 4% reduction in hourly wage rates. Second, these effects differ by field of study. Those in majors with typically higher earnings experience significantly smaller declines in most labor market outcomes measured. As a result, the initial earnings and wage gaps across college majors widen by almost a third and a sixth, respectively, for those graduating into a large recession. Most of these effects fade out over the first 7 years. Those in higher paying majors are also slightly less likely to obtain an advanced degree when graduating into a recession, consistent with their relative increase in opportunity cost. Our third set of results focuses on a recent period that includes the Great Recession. Early impacts on earnings are much larger than what we would have expected given past patterns and the size of the recession, in part because of a large increase in the cyclical sensitivity of demand for college graduates. The effects also differ much less by field of study than those of prior recessions.
Keywords: Labor Market Outcomes; College Graduates; Economic Conditions; Recession; Field of Study
JEL Codes: J24; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| unemployment rate at graduation (uc) (J64) | earnings (J31) |
| unemployment rate at graduation (uc) (J64) | employment probability (J68) |
| unemployment rate at graduation (uc) (J64) | hourly wage rates (J33) |
| unemployment rate at graduation (uc) (J64) | labor market outcomes (J48) |
| earnings (J31) | labor market outcomes (J48) |
| unemployment rate at graduation (uc) (J64) | earnings gaps by major (J31) |
| Great Recession (G01) | impacts of graduating into a recession (F66) |