Sunday, May 10, 2009

Lasting Effects of Graduating Now

A few times, I've alluded to the lasting impact on your income of graduating during a recession. The WSJ has a nice summary of these effects. Here's a taste:
Economic research shows that the consequences of graduating in a downturn are long-lasting. They include lower earnings, a slower climb up the occupational ladder and a widening gap between the least- and most-successful grads.

In short, luck matters. The damage can linger up to 15 years, says Lisa Kahn, a Yale School of Management economist. She used the National Longitudinal Survey of Youth, a government data base, to track wages of white men who graduated before, during and after the deep 1980s recession.

Ms. Kahn found that for each percentage-point increase in the unemployment rate, those with the misfortune to graduate during the recession earned 7% to 8% less in their first year out than comparable workers who graduated in better times. The effect persisted over many years, with recession-era grads earning 4% to 5% less by their 12th year out of college, and 2% less by their 18th year out.


One reason behind declining wage potential, economists say: The caliber of jobs available in a recession, and their accompanying wages, tend to suffer. High-end firms hire fewer people and drive down salaries because jobs are in such demand.

That means many graduates end up with lower-wage, lower-skill jobs at less-prestigious firms or in firms outside their field of interest. Once the economy picks up and they try for better jobs, these workers have to learn skills they should have been developing immediately out of college. In the meantime, colleagues who graduated in a better economy have already developed these skills and progressed much further.

I'm hoping that the recession, as far as the unemployment aspect of it, will begin to turn toward the beginning of the summer. If not, are there any studies that show that students who worked through college or who had several internships in their area of interest have been able to counter the decline in earnings compared to graduates from better periods?...
This article made me think of a very interesting question. Would it be better for college graduates this year to simply wait for the economy to turn around before searching for a job? Of course, it is impossible to tell without knowing how long it will take for the economy to turn around. It seems to me, that, if the economy does turn around within the next few years, it would be worth waiting in the long run.
Is it possible that the percentage reduction in wages for the average white male is just mathematical? The percentage of men that find jobs is probably related to the unemployment rate, right? For example, 100 men, at 5% unemployment earning an average annual income of $50,000, comes out to a REAL average (including the 5% that weren't employed that "year"..keeping in mind that who those 5% were shifted throughout the year) of 47,500. Whereas at an unemployment rate of 10% is 45,000, and at 15% 42, 11% reduction in income compared to the graduates at the 5% unemployment level.......I think I just lost myself...
Why the impact can linger that long? As the earning power of certain college classes is lower, won't there be a higher job change velocity? Why can't they change jobs and thus, earn a higher salary? They surely are better since they have experience and also face a fiercer competition.
I think its important to realize that although this is a rather discouraging article given our current economic conditions and the fact that were all close to graduating, we would be worse off not in college. Yes graduating during a recession is far from ideal, but the job market is rough for everyone right now. its not like we would be better off dropping out of college and waiting until the economy starts looking up again, before we returned to graduate. College still seems to be in everyone's best interest, because without a college degree we'd have an even harder time finding a job, climbing the ladder, etc.
I was suppose to graduate this summer, but I have delayed graduation by taking less classes this term, so I can graduate in December. After reading this article, I have a question. If by Christmas time the economy is still in a recession, should I further delay my graduation, or should I start working compromising my optimal utility? What would you do if you were me?
So basically I should post-pone my graduation for say 5yrs or so, right?
I can see how graduating during a recession hinders your immediate future, but how does it affect your income 15yrs from now, when the economy has recovered? I wonder if these same kind of numbers are experienced by college graduates who are also entrepreneurs?
Overall, this article is depressing for those soon to be graduates who have worked so long and so hard for this degree. I had always thought that receiving your college degree would take you places, but now a 4-year degree is just the beginning level. Now it seems you need a master's degree to be successful, and the bar just keeps rising and rising.
The article speaks of these "lost skills", you lose because you cannot secure a high level job right off the bat. What are these necassary skills that cannot be learned anywhere else? Yes, I would agree that now is not the best time to graduate, being an optimist not all is lost!
Looks like we have the misfortune of having to graduate during a recession. It seemed obvious that a recession era college grad would earn less right out of college than his boom time counterpart but it was interesting that the effects were so long lasting. The theory of how grads are forced to take lower wage jobs outside of their field of interest and how this has a negative effect on the work skill acquisition in an interesting aspect to this study. I hope this does not turn out to be the case for me.
i still plan on graduating on time regardless of the recession. the economy will not just magically turn around this year or even next. it'll be a very slow recovery process with possibly a bunch of smaller crises in between considering all this money the world banks are pumping into the system. i figure with the costs of tuition, missed income, i'd be better off finding a job asap while keeping an eye out for better jobs opening up as the economy gets back on track.
While reading this article I kept thinking to myself am I really going to suffer this much if I graduate now. Sure the thought of me not having a job lingers in the back of my head but at the same time I am fairly optimistic about what the future will bring. I think with this recession we will begin to see an increase of students who start attending Graduate schools trying to increase their signal. Many of my friends who are getting ready to graduate this year are jobless and do not know what they are going to do. I do feel bad for them and I feel fortunate that I have another year of school in which I am hoping the economy does turn around so I don't have to worry about graduating now.
As far as waiting a year or two to enter the labor market, in a very simple sense, I think that this may sound like a good idea, but if you look at the NPV of it, like we have used in class, I have a feeling that at most discount rates, it would be a better decision to start working now at a lower wage rather than waiting it out for a higher wage. This is because the value of the money you would earn in that year or two is much more valuable than the money earned in later years. So I would think that if you would get a higher NPV by starting immediately, even at a lower wage. Although this could depend on a lot of different factors.
This is a big issue for us because most of classmates will graduate soon and I am planning to graduate this summer term. Some people say that it takes 5 years to recover in this recession and others say that it takes forever which means it is not a recession and it happened necessarily. So, I do not delay my graduation date because we cannot predict our future's economy even if this article mentioned that the damage can linger up to 15 years.
Graduating now can't hurt more than graduating at a later date, even if you can't find a good job you are still put at the top of the list with a college degree over somebody that doesn't have a college degree. working for little wages and gaining work experience is a lot better than dragging out college. Also it looks better the sooner you graduate. If an employer sees that you have gone to school for 6 years they may think you are very un motivated. I was lucky enough to get a good job when I graduate this summer, but I would still rather work my minimum wage job and be out of school, then still be in school struggling to make it from month to month.
This research just makes me feel better about my personal decision to double major and take two more years to finish school, rather than single major and be out next summer.
Post a Comment

Subscribe to Post Comments [Atom]

<< Home

This page is powered by Blogger. Isn't yours?

Subscribe to Posts [Atom]