Does graduating into a recession affect long-term job quality?

Graduating into a recession may not affect overall employment levels, but could it affect job quality? The theory here is similar to the employment scarring effect. By graduating into a recession, a proportion of graduates don’t acquire jobs that allow them to maintain or develop their skills. This harms their CV, and employers will continue to overlook them as they age, stalling their careers.

In this analysis, I will take professional and managerial employment as a proxy for a quality job. I realise that this is imperfect. Broad job categories can under- or over-state the skills actually required in particular jobs. Job categories are also known not to always match with subjective perceptions of skills use or job satisfaction. But this is the best I can do with readily available data from the census.

As can be seen from the slide below, with dots in the line for the group of most interest, it is hard to see evidence of a scarring effect. It looks like the early 1990s recession cohort are continuing their career climb – not shown, but there is a shift from jobs classified as ‘professional’ to those classified as ‘managerial’, as people move into more senior jobs.

prof and manager 2011

Another test of graduate outcomes is income. Unfortunately the census uses a category of $2,000 a week or more for all higher income earners. But taking this cut-off again we see little evidence (dotted part of the line) that our assumed recession graduates are significantly off-course in their careers. However, by dividing the group into undergraduate degree only and postgraduate we can see one reason why postgraduate study has boomed in recent years.

income 2011

Of course, we can’t rule out that there is some salary penalty hidden in the broad $2,000 a week or more category. But it is hard to argue based on this evidence that there is a significant cohort from the early 1990s who are still doing it tough in 2011.

None of the data sources I have been able to use in analysing this issue are fully adequate. But overall the results I have incline me against the scarring hypothesis. Based on this 1990s recession evidence, employers typically don’t write prospective employees off just because their careers get off to a slow start.

6 thoughts on “Does graduating into a recession affect long-term job quality?

  1. Nicely done Andrew. I had always thought these effects were significant – good to see they don’t seem to be, at least in this instance.

    One clarification – how did you pick out those who graduated during the period of high unemployment? It looks like you only have age. But school-leavers who go to university could reasonably graduate between the ages of 20 and 25 depending on their course and full-time/part-time status. This would spread any effect out over a wider window. Admittedly there doesn’t seem to be any deviation from trend even over a ten year window.

    Another thought – Australia had strong labour demand late in the 90s and even more so in the mid-2000s. It could be that this possible hysterisis gets wiped out by a ‘boom’ when employers are willing to hire everyone who looks half-way decent? If a a boom never comes along (thinking current Eurozone), perhaps there could still be a scarring effect.

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  2. With the census, age is the only option. I have covered the modal years assuming starting higher education in late teens and graduating 3-4 years later (age 22), but as you say there are many exceptions to this.

    I also checked the 2006 census for people the same age (so graduating 5 years earlier than the 2011 census early 1990s uni-leaver cohort) and saw no evidence that the later group was doing worse.

    ABS Learning and Work has year-ranges of graduation, including 1990-94. I decided not to pursue this in the post because the standard errors are too large to pick up the smallish changes we are likely to get.

    With this caveat, and with bachelor degree only, I found the same career-progression upward movement for the whole cohort, and 1990-94 actually doing better if we restricted the analysis to those who had jobs.

    My work with the census highlighted the need to include postgraduates as well, but I did not go back and do this on Learning and Work, as I was not convinced it would solve my statistical problem.

    As noted in the post, for the early 1990s graduates I cannot say beyond reasonable doubt that there are no scarring effects. However, the claim that there could be is only theoretically based, with no strong empirical evidence to support it.

    I have another post coming on whether this time is different.

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  3. Cool – you do the best with the data you have.

    This reminds me of how I find a simple statistical analysis more persuasive than a fancy one.

    Do you know off the top of your head how much worse new graduates fare during a recession than people older or more experienced than them?

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  4. There are some stats on under 25 in first FT job compared to the whole sample, if that is what you mean. I haven’t created a time series, but the situation was worse for them in 2014. Comparison is complicated because many of the older grads already had FT work before finishing, so the Graduate Destination Survey isn’t really a test of the graduate employment market in their cases.

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  5. What I’m getting at is that if everyone were equally as likely be made unemployed by a recession, it would be little surprise if the effect on new graduates didn’t stand out.

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  6. The analysis is assuming that new entrants to the labour market are hit particularly hard by recessions – something we can prove from data at the time – and trying to identify potential long-term harm from this early experience. This cohort comparison analysis cannot identify the consequences of everyone being affected fairly equally by a recession.

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