Graduating during a recession can be so bad for your future that you should avoid graduating during these times at all costs. That is more or less the depressing conclusion reached by researchers who watched how graduates of the recession in the early 1980s progressed throughout their lifetimes. Researchers found that the graduates’ careers, health and family lives were all affected by the poor start to their work lives.
Hopefully things have changed and Gen Z graduates will encounter the same fate no matter what the economy throws at them and when they happen to graduate within the wild ride of the last four years. Still, with the Canadian economy now hitting a soft spot, it is worth taking a look at how starting a career during a downturn can reverberate for years to come.
It is not hard to understand that it is more fun for job seekers when the economy is booming, and that’s doubly true for new graduates. Everyone is hiring, so everyone is receptive to those seeking work. Calls get returned quickly, interviews get arranged, offers can be generous and numerous, and young workers are likely to be spared the tiresome ‘we need someone with experience’ explanation for why they cannot be hired. The opposite happens when the economy is weak. Hiring slows and offers are stingy at best, or they are for contracts rather than permanent jobs. It’s not the time to be picky, so workers settle for less, which has a domino effect as they struggle up a ladder that started at a lower rung than it might have.
A paper published by the U.S. National Bureau of Economic Research earlier this year takes it further, suggesting that the negative outcomes of graduating during a recession can be reflected in more places than on paycheques. Authors Hannes Schwandt and Till von Wachter tracked the experience of those who graduated during the 1982 recession (which until the ‘Great Recession’ which started in 2008 was the worst since the Second World War), looking at their lives from their early 20s until they turned 50. Their conclusions are not pretty.
From having higher rates of disability through to choosing spouses that were also less-than-successful to suffering from more lung, liver and heart disease, the 1980s graduates were apparently hit from all sides. As the authors describe it, “early adulthood [from 18 to 25] is a critical phase for neurological, social and psychological development.” Those who spend that period in a down economy start their lives under a cloud that kicks-off with worse employment prospects and lower earnings than wouldn’t otherwise have been the case and it just goes on from there.
The 1982 recession grads were apt to choose partners who also got a poor start and to have more money problems that eventually caused them to divorce. They were also less likely to take care of their health early, which meant they reached middle age in worse shape. A caveat though that this refers to the experience of U.S. workers and the experience of Canadians may be different given that our health care is not tied to employment.
Those who did divorce were less likely than others to find new partners and remarry. The researchers also calculated that this kind of misfortune would result in a lower lifespan, estimating that graduating when the unemployment rate was 3.9 percentage points higher than it would have been (as was the case in 1982) ultimately results in a decrease in life expectancy of six to nine months.
Canada’s unemployment rate rose in November to 5.8 per cent. It had fallen to less than 5 per cent in the middle of 2022 and the trend since then has been upward.
The experience of the 1980s graduates is interesting, although we can only hope that their experiences would not apply to graduates of any future recession. One thing that is different is the demographics of the 1980s, which had the young labour force growing strongly enough that their unemployment rates spiked quickly when hiring slowed.
This time, the aging population means that the unemployment rate is already low and unlikely to rise as much even if hiring slows. As well, despite the relatively strong employment market of the past few years, many do not seem to want or expect as much from their careers as has been true in the past, or at the very least want more of a balance between work and the rest of their lives. Job hopping is more common, as is gig work and side hustles. All of these things may have young workers reacting differently whatever happens in the broader labour market.
The NBER researchers conclude that the impact of economic slumps on new graduates is so dire that policymakers should use every tool at their disposal to avoid recessions whether that means cutting interest rates or spending government money. That’s something to think about, but regardless it may be too late to salvage the outlook for 2024. That means that once again individual workers have to think about saving themselves and perhaps they will. In many ways the young workers of today are not like their parents or grandparents, and we can only hope that that gives them some resilience against the turns of the business cycle.