Facing the toughest labor market since they were born, this spring’s college graduates – even those who can find jobs – will likely earn lower wages for a decade or more compared to those who graduate in a better economy, according to recent research out of the Yale School of Management.
Lisa Kahn, a Yale SOM economist, tracked the wages of white male graduates before, during and after the deep 1980s recession using National Longitudinal Survey of Youth, a government database. Her findings were reported in a recent Wall Street Journal article.
According to Kahn’s research, the consequences of graduating in a downturn include lower earnings, a slower climb up the corporate ladder and a greater gap between the least- and most-successful graduates, the Journal reported.
For each percentage-point increase in the unemployment rate, those unlucky enough to graduate during the recession earned 7 to 8 percent less in their first year out than workers who graduated in better times, Kahn’s studies showed. And it only got worse from there. “The effect persisted over many years, with recession-era grads earning 4 to 5 percent less by their 12th year out of college, and 2 percent less by their 18th year out,” the Journal reported.
The Journal report included several tales of recent college graduates settling for lower-wage, lower-skilled jobs than they ever anticipated, with many returning home to live with parents or working multiple odd jobs to cover expenses.
Still, college graduates remain better off than those with only high-school diplomas, the Journal reported: The unemployment rate in April among four-year college graduates between 20 and 24 years old was 6.1 percent; among those the same age with only high-school diplomas, it was 19.6 percent.
Staying in school beyond college can help counteract the long-lasting lower-wage impact of graduating in a recession even further, according to Kahn. College grads who went to graduate school instead of into the job market during the early ’80s recession didn’t suffer the same wage losses, she told the Journal.
According to recent numbers from the Council of Graduate Schools, many college students are taking that approach, the Journal reported. Graduate applications for 2007-2008 were up 8 percent nationwide compared to the year before, with schools like Northwestern and Harvard already tracking double-digit increases this year.
Isn’t it time you started working on your business school application?
To read Professor Kahn’s paper, click here.
