Does graduating into a recession reduce long-term employment levels?

Poor recent graduate employment outcomes inevitably raise questions about whether this shows just a slow period of labour market adjustment, or whether it is a sign of something more serious. One theory is that early periods of unemployment or low-skill employment have a scarring effect on future employment. The basic theory is that during unemployment existing skills deteriorate and new skills that come with work experience are not developed. Either or both of these things happening or employers assuming from CVs that they may have happened compound the original employment problem. What could be a temporary setback is turned into a long-term disadvantage.

For graduates, the early 1990s recession provides an opportunity to look at potential scarring effects. There were three years of more than 25 per cent un- or under-employment from 1992-94, and 20 per cent plus for 1991 and 1995.

The ABS Learning and Work survey* has a question on when the respondent graduated. On a question asking what impact their qualification had in their working life in their first six months, those completing between 1990 and 1994 had the highest rate of saying ‘no impact’, 26 per cent. The next worst result was 23 per cent for those completed between 2000 and 2004. Unfortunately, the labour force results are hard to interpret due to sample size issues. The ABS says the margins of error are too high on all the unemployment results for them to be reliable. The not in the labour force results are higher for 1990-94 graduates than either 1985-1989 or 1995-99 graduates. However this is almost certainly due to women absent from the workforce for family reasons (if I break the results into male and female I get the expected outcome, but with the ABS again warning that the margins of error are too high).

Another option is to use the census, which has problems with people not answering all the questions but still has many respondents. While the census has no question on exactly when degrees were completed, as most students start bachelor degrees in their late teens we should be able to see any obvious scarring effects. My theory here is that people aged 39 to 41 years at the time of the 2011 census were likely to have graduated into the early 1990s recession. If there is a scarring effect, they should have worse outcomes than people who are a little younger or older. The slide below shows the results for being in work, for male bachelor degree holders only, as the female not in labour force results are too ambiguous.

census unemployed

What surprised me about this is how employment drops for men in their forties. While there is a slight increase in unemployment for the target 39-41 years group compared to younger men this looks like a life cycle effect. The same phenomenon is evident in the 2006 census. So overall I would say there is no strong evidence of a scarring effect on overall employment levels of graduating into the early 1990s recession.

Update 9 January: After yesterday’s post seemed more interesting for the activities of men in their forties than for employment scarring, I wondered if the issue might at least partly be residualisation of the bachelor-degree group. In other words, the more successful men go on to postgraduate study leaving the men with bachelor degrees who have given up looking for work as a larger share of the remaining people who say a bachelor degree is their highest qualification. As men get older, they do become slightly more likely to give a postgraduate qualification as their highest qualification (slide below).

highest ed level

However, this is only a partial explanation. When I separate the analysis into education levels, men with postgraduate qualifications also start leaving the labour force in their 40s, although at a lower rate (slide below).

uni ed not in albour force

I’ve had a quick look at some of the other characteristics of men with bachelor degrees who are not in the labour force. The affluent retired hypothesis has some truth but far from explains it. About 10 per cent of this group report a personal income of $1,500 a week or more, compared to more than 60 per cent of all men at this age and education level.

About 40 per cent report doing childcare, although this does not mean that they are the principal carers for their children. About a third have no live-in partner, so they are not obviously relying on someone else to pay the household bills.

Around 10 per cent of male bachelor degree holders who are not in the workforce report a ‘need for assistance with core activities’ compared to 0.2 per cent for those working full time. The cumulative effects of accidents and ill health are starting to show in this demographic.

* The results reported here are not available for free on the ABS website.

4 thoughts on “Does graduating into a recession reduce long-term employment levels?

  1. “The same phenomenon is evident in the 2006 census.”

    I assume you mean the lack of scarring rather than the male 40s drop-off in employment? If so, is the drop-off also evident in the 2006 census? I wonder if the drop-off is linked to the post-GFC economic environment, with white-collar men who have been laid-off not being eligible for or not bothering to register as unemployed (respondents might interpret ‘unemployed’ to mean in receipt of Newstart).

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  2. The drop of in employment of men in their 40s is really interesting.

    It may not all be bad. I have friends in the late 30s who have retired after finance careers. Perhaps also some men in their 40s are looking after kids and the house as their spouses earn more than they do.

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  3. Rajat – The male drop-off in employment in their 40s is also evident in the 2006 census.

    I think the ABS infers unemployment or not in labour from census questions about actively looking for work in the last four weeks. So I think someone not actively looking for work is assumed not to be in the labour force, even though they would like to have a job.

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  4. Thanks Andrew.

    Steve, I wonder how real retirement is for successful 40-something men. I only know of two guys that age with genuinely enough money to retire. One was a proprietary trader at a major financial institution and the other owns a few pubs. The trader is now a high-school maths teacher. The publican nearly went broke a few years ago but is now worth a few tens of millions. Both have families with a couple of kids. I can’t see either fully retiring any time soon. I know one guy who is the primary carer of two kids, but even he works part time. A while ago, Andrew presented some data of single (and/or childless?) graduate women exiting the labour force in their 40s and 50s, but I can’t see formerly high-achieving corporate family men doing the same. After all, they are tied down by their kids’ schooling commitments for 40 weeks a year, so long-term travel is out of the question. The only men I see potentially ‘retiring’ in their 40s are those who are childless and financially secure but from outside the corporate sector and there would be very few of those….(possibly our blogger here, but even then I could imagine him working for free rather than actually retiring). However, it sounds like you know a few who have done it. Is it permanent though?

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