Regular commenter John Personna passes along a rather depressing report from Justin Lahart of WSJ’s Real Time Economics blog:
Number of the Week: Falling Wages for Young College Grads
9.6%: Decline from 2000 to 2010 in inflation-adjusted median earnings of people 25 to 34 years old with a bachelor’s degree and no graduate degree.
Few people have gone unscathed by the bad economy, but the way it has damaged the prospects of America’s young college graduates may be one of its most lasting legacies. The high unemployment they are now experiencing will leave many of them a step behind throughout their careers. Research by Yale School of Management economist Lisa Kahn found that workers who graduated from college during the deep recession in the early 1980s were still worse off than workers who graduated in better times in 2006.
When young college graduates do land a job, it often won’t pay well. According to the Census Bureau, the median annual earnings of a worker 25 to 34 years old with a bachelor’s degree (but no graduate degree) was $40,875 last year. That compares with $45,200 in 2000, adjusting for inflation.
That inflation-adjusted earnings for college grads early in their careers is worse during the worst economic crisis in decades than it was during the mild recession of 2000 isn’t shocking, although the magnitude is higher than I’d have guessed.
The real story isn’t so much the dip itself but the fact that study after study shows that people never fully recover from a bad start. That’s a continuing theme in Kahn’s research. Her paper “The Long-Term Labor Market Consequences of Graduating from College in a Bad Economy” came out in 2009 and got quite a bit of coverage at the time.
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.”
[…]
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.”
That’s a hell of a lot easier to say from a secure post at Yale than it is to do as a young person desperate to keep a job.
UPDATE: Matt Yglesias points to two charts depicting Unemployment Rate by Age and Unemployment Rate by Education and observes.
[I]f everyone you know has a BA, then your social reality is of an economy that’s not necessarily in crisis. This is especially true when we combine the charts. There are a lot of members of the classes of 2008, 2009, 2010, and 2011 who are feeling intense economic pain. But if you’re a middle aged college graduate, the vast majority of your friends are outside of the key crisis demographics. As I said before, I simply don’t believe the Federal Reserve would be doing what it’s doing if nine percent of Charles Plosser’s friends were unemployed. Something has to be done to make the jobs and income crisis real to the people who matter.
He’s certainly right that middle aged college graduates have a very different perspective on the current state of the economy than young non-grads. I’m not at all sure, though, what the Fed would be doing differently if its consciousness were somehow raised. As far as I can tell, it’s pretty much fired every bullet in the chamber and missed the target.
