Friday, November 6, 2020

Entering the Labor Market in a Recession: Some Findings and Advice

Trying to get a job during a period of recession and high unemployment is hard for everyone, bit for those just entering the labor market for the first time it can leave scars on their lifetime earnings and even their personal health. Till von Wachter discussed the evidence from past recessions--and offers some advice for those currently living through this experience, in "The Persistent Effects of Initial Labor Market Conditions for Young Adults and Their Sources." Journal of Economic Perspectives, 34:4, pp. 168-94). In describing the longer-term effects of entering the labor market in a recession, he writes: 
Over the last 15 years, an increasing number of studies have analyzed the short- and long-term effects on individuals entering the labor market in a recession, and this article will take stock of the core empirical methods and findings from this literature. On average, individuals entering the labor market in a typical recession (a 3–4 point rise in unemployment rates) experience a reduction in earnings of about 10–15 percent initially---somewhat smaller for college graduates, somewhat larger for high school graduates, and a particularly large reduction for nonwhites. Estimates for college graduates suggest that during recessions, workers tend to start jobs at less prestigious occupations and smaller- and lower-paying firms. For some groups, such as PhD economists and possibly MBA graduates, an initial occupation choice permanently affects career outcomes. An early-career economic shock has the potential to be disruptive beyond strictly economic outcomes, too. An increasing number of studies document that adverse labor market entry has effects on health and other outcomes like marriage, divorce, and women’s fertility and can affect socio-economic outcomes, health, and mortality in middle age. ...
As he digs down into the evidence and models, a basic insight here is that early jobs often set the stage for the later jobs. Many workers in their 20s switch jobs a number of times before settling into what feels like a good fit for at least the medium term. But when dealing with limited options for employment, finding that employer who is a a good fit for the long-term is harder, and switching between jobs may be harder, too. Von Wachter offers some advice: 
The crisis in the labor market triggered by the COVID-19 pandemic has given this line of research increased urgency and has made it relevant to the 4 million or so young individuals graduating from college or high school in the summer of 2020.  Some useful lessons emerge from the research reviewed here:
  1. Your first job out of school may not be what you had expected, but that’s OK. Being flexible in your choice of, say, occupation or where you live will give you more options.
  2. Your career will take longer to develop than that of luckier peers. Do what you can to avoid being locked into that first job by continuing to accumulate general skills and looking for opportunities to move to other jobs.
  3. If things are going slow, remember, it is hard for everyone. At the same time, all findings discussed here are for averages and do not necessarily apply to you—you have agency in shaping your life and career. 
  4. You may need to save a higher percentage of income early in life to meet long-term wealth goals.
  5. Your desired patterns of marriage and fertility may take more effort to achieve. 
  6. Take particular care to develop and maintain a healthy lifestyle and be kind to yourself, in part because it will help you weather difficult initial labor market conditions. 

(N.B. I should add that I'm the Managing Editor of the Journal of Economic Perspectives, and thus in all likelihood personally biased in thinking that the articles therein are of considerable interest.)