Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/34840 
Year of Publication: 
2008
Series/Report no.: 
IZA Discussion Papers No. 3578
Publisher: 
Institute for the Study of Labor (IZA), Bonn
Abstract: 
This paper analyzes the long-term effects of graduating in a recession on earnings, job mobility, and employer characteristics for a large sample of Canadian college graduates using matched university-employer-employee data from 1982 to 1999. The results are used to assess the role of job mobility and firm quality in the propagation of shocks for different groups in the labor market. We find that young graduates entering the labor market in a recession suffer significant initial earnings losses that, on average, eventually fade after 8 to 10 years. Labor market conditions at graduation affect firm quality and job mobility, which can account for 40-50% of losses and catch-up in our sample. We also document that higher skilled graduates suffer less from entry in a recession because they switch to better firms quickly. Lower skilled graduates are permanently affected by being down ranked to low-wage firms. These adjustment patterns are consistent with differential choices of intensity of search for better employers arising from comparative advantage and time-increasing search costs. All results are robust to an extensive sensitivity analysis including controls for correlated business cycle shocks after labor market entry, endogenous timing of graduation, permanent cohort differences, and selective labor force participation.
Subjects: 
Job search
hysteresis
college graduates
cost of recessions
JEL: 
J62
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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