Yale study: Starting career during recession can damage salary for decades
Filed under: Economy
What happens to bright young things when they graduate college in the middle of an economic downturn? According to Lisa Kahn, assistant professor of economics at the Yale School of Management, it's not a pretty picture. While it might seem like things will be looking up as soon as the economy revives, her findings show that the damage from entering the job market during a recession can last up to 20 years. Khan says salaries for new employees are directly related to the unemployment rate. Using data from the National Longitudinal Survey of Youth, she calculates that those graduating during hard times earn 6 to 8 percent less in their first year on the job for each percentage-point increase in the unemployment rate. That means a 1982 graduate entering the job market when the unemployment rate stood at 10.8 percent earned, on average, 23 percent less than a worker graduating in May 1981 when unemployment was 7.5 percent.
In the long run, this has immense consequences which are difficult to overcome. In comparing groups of graduates who entered the work force during economic downturns with their luckier counterparts who graduated in better times, Kahn found that there is a major difference in the amount of money earned over time. "One striking fact," she says, is that "over 17 years after college those groups have a $100,000 difference in earnings."
The problems begin as soon as a new graduate comes face-to-face with a tough job market and begins making compromises. "People leaving school in a recession are starting at a lower-level job and at a lower earning level," because there just aren't that many jobs around, says Kahn. In many cases, graduates end up taking jobs unrelated to their career plan. "By the time you switch back into your field," says Kahn, "you are behind."
Those who join the workforce in better days, meanwhile, continue to progress in their higher-level and higher-paying jobs where they can hone their skills and receive pay raises and bonuses based on their higher original salaries.
Even for those who do manage to find their dream job during a recession, there may not be much reason to gloat. "What if you are in a recession and you are the one lucky guy who finds a great job right away?" asks Kahn. "You will never know if you would have done better in a boom time. My work shows that, on average, throughout the entire sample, you would have been doing better."
Another factor that adversely affects job prospects is the fear associated with searching for a new job. Studies show that those who regularly move between jobs increase their salaries and get ahead faster. Kahn found that those who had a tough time finding a job in the first place are less likely to put themselves back on the market -- even once the economy has improved. "They change jobs less often, and when you are young you are supposed to change jobs more often," says Kahn. "You need to find the right fit for you, and that's often how people increase their salaries."
Unfortunately, the picture is not looking good for today's job-seekers. As Kahn points out, there are many similarities between the '82 recession and our current situation: "They both affected skilled workers, as opposed to other recessions we've had that affected lower-class and blue-collar workers like steel and auto workers." And while many countries are now pulling out of recession, the jobless figure remains astonishingly high. Last month, the unemployment rate stood at 9.7 percent, compared with 9.8 percent in August 1982. In December of that year, unemployment hit a terrifying high of 10.8 percent.
Frighteningly, the 9.7 percent estimate doesn't even include unemployed people who have simply given up looking for work or have taken on low-paying, part-time gigs to try to make ends meet. When the U.S. Bureau of Labor Statistics includes people who are not working full time but would like to be, the unemployment figure for August jumps to 16.8 percent.
For those unlucky enough to be sending out resumes for the first time right now, the Yale professor has lots of advice: "Go back to school if you can stomach it," she says. "Be mindful that you might not be reaching your full potential right now, and always be thinking, 'Should I move? Maybe there's a job out there that I would be better suited to.'" Recessions make people fearful, so they tend to settle for jobs that don't stretch them; to overcome that pitfall, you need the right mindset. As Kahn puts it: "Don't accept the status quo."
Why is Oprah going to cable? A hint: It's nothing to get teary about
Kisses from Hershey: Candymaker may court Cadbury with $17 billion bid
D-Day for Harry Reid: Can he wrangle 60 votes for Senate health reform bill?
Reader Comments (Page 1 of 1)
9-26-2009 @ 8:44AM
kevin said...
Every generation has their hardships, stop you're whining!
Reply
9-26-2009 @ 10:57AM
Will said...
Sensible employers cannot and will not hire people that are a high probability of being Obama supporters. Obama supporters are generally anti business, and anti wealth / profit building. In addition they have pitched grenades at business management and owners such as mobs, redneck, uneducated, stupid, racist and a host of other accusations towards the business community. The young and unexperienced and just plain miseducated persons are not worth much and in cases, would not be hired if they would work for free (like they want the owners to do).
Reply
9-26-2009 @ 1:12PM
John said...
Did it every occur to you that the very reason we are now in a recesssion is because your 8 years of Bush ?....and the results of your beloved Repulican mantra of fee market capitalism , have left this country economically destroyed...very similar to the results of the decade of Repulican rule in the 1920's....under Calvun Coolidge and Hoover. .. Free Market Capitalism...left unregulated , is no better than pure socialism, left un checked. Whenever the country goes too far in any direction.. we pay the price for decades. ...and the FACTS are that the USA has done economically far better after long terms of DEMOCRAT rule than REPUBLICAN.
Vote Demorcrat. ...and prosper.
9-26-2009 @ 1:05PM
bbnfaz said...
Obama's mishandling of the Barney Frank disaster will keep grads down for a long time. Frank's closed-eye monitoring of Fannie Mae & Freddie Mac will continue to revirberate in the halls of education. His position in the Worst Congress in history remains locked-in by corruption.
Reply
9-26-2009 @ 1:10PM
Clintwood East said...
Bright young things? Most cannot tell you when the great depression took place, or where you'd find Finland on a world map!
Of course you can't paint them all with the same brush so I have to be fair. But some college grads cannot write, or spell correctly, and have little, or no sense of the real world. What they earn and where they will place themselves in the real world today is largely based on what you know, and what you don't know.
Reply
9-26-2009 @ 1:23PM
MyKisa said...
America did well for 137 years without a fed reserve and IRS...follow the money trail to most every problem people face today....
Reply
9-26-2009 @ 1:49PM
Will said...
For those that continue to blame Bush and Capitalism and even claim the cause of the recession is the same as Hoover's "free capitalism" please be advised that the regulation of capitalism duing Bush years has to be 10,000 times as much as Hoover's thus proving liberty is not the cause of economic problems. Even as we know anti capitalists (any level of it) are socialists, we are asked to choose the form of socialism that rules by total regulation (fascism) or the goverment nationaliztion of the economy (communism). They never say which they are and will never and can never support the idea that either is better than capitalism. Obama, by the way, is a fascist socialist.
Reply
9-26-2009 @ 4:58PM
mike said...
Making less might make them realize that they are not the miracle employee they seem to think they are, times were better when new graduates new to the work force, knew and expected that the big bucks were not going to be bestowed on them untill they had proven their worth, they graduate now and seem to expect and demand the big bucks, letting them work for it might humble them a little bit you want it prove that you deserve it,,and show them that they are just another body that can be replaced
Reply
9-26-2009 @ 2:21PM
trash said...
This article is stupid. It makes it sound like the world owes a living to every college grad. Right now, I see tons of jobs that expect you to have a masters degree knowledge, but only pay 12 bucks an hour. How f***ed up it that ? Things are tough all over. Don't expect the world to bend over just because you're a litttle smarty pants with a college degree. Most college degree programs are so far behind real world job demands and render grads that are useless. I'm surprised most grads get paid at all.
Reply
9-26-2009 @ 2:49PM
MrDoughnut said...
Have you noticed technology often does not equal an increase in good paying employment in the USA? Many can not afford the new technologies.
Reply
9-26-2009 @ 4:19PM
Sandy said...
"Trash said" says it all
Reply
9-27-2009 @ 7:50AM
Tony said...
Right on the money
9-26-2009 @ 9:48PM
joey bagodonuts said...
ISN'T BARNEY FRANKS THAT MUMBLING, STUTTERING IDIOT. I'D LOVE TO SEE THE DEFECTIVE GROUP THAT VOTED FOR HIM. CASE CLOSED.
Reply
9-26-2009 @ 10:07PM
joey bagodonuts said...
EACH STATE HAS A MINIMUM OF 2 TO 3 FOOTBALL STADIUMS OF PEOPLE WAITING ON EACH JOB LINE. HOW THAT HOPEY CHANGEY THING GOING FOR YA, COLLEGE IDIOTS. DID FAMILY PLANNING, PLAN FOR THE WORST, I THINK NOT. THE ENTITLED GROUP IS ENTITLED TO NOTHING. NOT JUST DONE, WELL DONE.
Reply
9-26-2009 @ 10:24PM
joey bagodonuts said...
NOW THAT CHINESE IS OFFERED AS A LANGUAGE IN HIGH SCHOOL, THE STUDENTS CAN UTILIZE THE UNDERSTANDING OF THIS LANGUAGE TO FILL OUT THEIR CHINESE JOB APPLICATION. CAN YOU SAY, " TWO DOLLA AN HOUR AND ALL THE RICE YOU CAN EAT." GOOD LUCK, KNUCKLEHEAD.
Reply