Working Paper: NBER ID: w27516
Authors: Jesse Rothstein
Abstract: I study cohort patterns in the labor market outcomes of recent college graduates, examining changes surrounding the Great Recession. Recession entrants have lower wages and employment than those of earlier cohorts; more recent cohorts’ employment is even lower, but the newest entrants’ wages have risen. I relate these changes to "scarring" effects of initial conditions. I demonstrate that adverse early conditions permanently reduce new entrants’ employment probabilities. I also replicate earlier results of medium-term scarring effects on wages that fade out by the early 30s. But scarring cannot account for the employment collapse for recent cohorts. There was a dramatic negative structural break in college graduates’ employment rates, beginning around the 2005 entry cohort, that shows no sign of abating.
Keywords: labor market outcomes; Great Recession; scarring effects; college graduates
JEL Codes: E24; J2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Initial labor market conditions (J49) | long-term employment rates (J68) |
| Initial labor market conditions (J49) | long-term wages (J31) |
| Cohorts entering during the Great Recession (D29) | lower employment rates (J68) |
| Adverse early conditions (I12) | permanent reductions in employment probabilities (J63) |
| Scarring effects (E71) | declines in wages for Great Recession entrants (J39) |
| Initial labor market conditions (J49) | scarring effects (E71) |
| Scarring effects on employment (J68) | permanence of lower employment rates (J68) |
| Scarring effects on wages (J39) | fade over time (Y60) |