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When It Pays to Stay in School

Students who enter the job market while the economy is strong find success earlier and earn higher wages throughout their careers than those who join the workforce during a down economy.

(originally published by Booz & Company)

Title: The Long-Term Labor Market Consequences of Graduating from College in a Bad Economy (Subscription or fee required.)
Author: Lisa B. Kahn (Yale University)
Publisher: Labour Economics, vol. 17, no. 2
Date Published: April 2010

Graduating from college in a slow economy is bad enough — the shortage of well-paying positions means it’s a scramble to find a good job. But how much does entering the workforce during a downturn affect one’s long-term career prospects? Quite a bit, this study finds, especially in wages. In fact, graduates might be better off waiting a year or two for the economy to rebound rather than plunging into a stagnant labor market.

The author analyzed educational and professional data from the National Longitudinal Survey of Youth (conducted by the U.S. Bureau of Labor Statistics to collect information on the lives and occupations of groups of men and women), focusing on those who graduated college between 1979 and 1989. The author looked solely at white males, because their job prospects and decisions were least likely to be affected by external factors such as discrimination or childbearing. Those who entered the workforce in the midst of the early 1980s recession were compared with those who graduated in rosier economic times.

Tracking more than 500 subjects for between 14 and 23 years after college, the author studied the effects of graduating in a bad economy on employment status, job tenure, wages, decision to go to graduate school, and fulfillment of career goals. Students who graduated during a recession spent more time finding jobs and earned 6 to 8 percent less coming out of school than the more fortunate individuals who graduated in years of economic prosperity. And the compensation of the former group never caught up. Recession-era graduates earned 3 to 5 percent less over a 20-year time frame. The smaller paychecks were a result of holding less-prestigious jobs for longer periods of time, indicating that workers who graduated in times of high unemployment also struggled to progress into better positions at their companies or at other organizations once the economy turned around.

The author argues that forfeiting a year or two of wages could represent a smaller overall loss than the drop in career earnings that is forecasted for recession-era graduates. For those who can afford to wait, graduate school could be a better option than struggling in a tough economy. And an advanced degree might lead to a better job out of school. Indeed, college graduates in the study who faced a bleak economic landscape went to graduate school at higher rates, a smart move ensuring that they did not forfeit wages during their subsequent careers.

Bottom Line: Entering the workforce in the midst of a troubled economy has a long-term negative effect on an employee’s wages. Recession-era graduates generally occupy less-prestigious positions for a longer time and collect lower wages throughout their careers.  

Author profile:

  • Matt Palmquist was a founding staff writer and is currently a contributing editor at Miller-McCune magazine. Formerly, he was an award-winning feature writer for the San Francisco–based SF Weekly.
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