The Future of Youth in the Era of COVID-19 – IMF F&D


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Youth who graduate in a crisis will be profoundly
affected and may never fully recover


For the millions of the world’s young people who will survive the pandemic,
there’s still truly difficult news ahead. Not only will the COVID-19
recession give new entrants to the job market a rocky start to their
careers, it will also put them at risk to make less money for decades,
commit more crimes, have less satisfying family lives, and maybe even die
earlier than luckier job seekers.


That’s the bleak conclusion emerging from an expanding arena of research
into the long-term effects of entering the job market in a recession.
Researchers crunching decades of data on previous recessions have obtained
a range of sobering findings for the United States. An increasing number of
studies find similar results in Canada, Germany, the United Kingdom,
Austria, Spain, Belgium, Norway, and Japan.


The plight of new high school and college graduates is starting to draw
media attention. Tessa Filipczyk, a 22-year-old June graduate in marine and
coastal science from the University of California, Davis, told Bloomberg
News that she applied for jobs related to ocean conservation, marine plant
research, and climate change advocacy. She planned to work for a year
before starting graduate school. No job offers materialized, and she’s
living with her parents.


“That all just got swept under the rug by COVID,” she said.


Jayden, a 17-year-old who was interviewed by the Atlantic
, was hoping before the pandemic to learn to become a mechanic after
finishing high school in eastern Missouri. She hoped to find a job in an
auto repair shop, but that plan evaporated, leaving her working at a
fast-food restaurant.


“I don’t want to work [in fast food] forever,” she said, “but I also don’t
want to quit there if I don’t have a more career-based job.”


In recent work, we studied new labor market entrants through booms and
busts in the United States over 40 years from 1976 through 2015. Our work
was partly inspired by our observations of friends who completed degrees
around the time of the Great Recession. Even after several years, we
noticed a significant difference in the job quality and job satisfaction
between those who entered the job market just before the recession and
those who did so as it unfolded.


Based on our findings, we approximate that the roughly 6.8 million young US
labor market entrants looking for their first full-time job in 2020 might
give up about $400 billion in earnings over the first 10 years of their
working lives. That projection is based on a swift economic recovery in
2021. If the pandemic-induced recession continues or deepens next year,
2020 graduates might fall even further behind, and an additional unlucky
group of new entrants would face the same dire outlook in 2021.


Roughly 6.8 million young US labor market entrants looking for their first full-time job in 2020 might give up about $400 billion in earnings over the first 10 years of their work-ing lives.


As the world races to develop an effective vaccine, policymakers responding
to the pandemic’s economic crisis need to address this group’s predicament.
In the short term, responses could include job search assistance,
incentives for part-time work, and payroll subsidies for newly hired
workers. For the medium term, welfare and support policies need to account
for lasting impacts, especially for the less educated.


And it’s important to inform young workers about the negative long-term
impacts they face and their causes. Knowing that their challenges probably
don’t reflect a lack of skills or personal failure can motivate those in
less productive jobs to keep seeking opportunities and move to better jobs
as the economy recovers.


Economists’ understanding of the long-term damage from starting a career in
the face of a recession has deepened in the years since the Great Recession
more than a decade ago. Traditionally, economists thought of economic booms
and busts as temporary phenomena. But studies of large cross-sectional and
longitudinal data sets around the world find persistent effects of
downturns for those who enter the job market during a recession. Such
long-term impacts have been found for MBA graduates, PhD economists,
college graduates in general, and really for most groups across the
demographic and educational spectrum in the United States and in other
countries studied.


Those unlucky enough to start careers in a recession have been found to
experience lower earnings for 10 to 15 years after graduation, or longer.
Less educated and non-White workers experience prolonged episodes of
unemployment and temporary increases in poverty. More highly educated
workers take jobs with lower-paying employers and partially recover by
switching to better employers. Studies have also found that those in this
group are more likely to have lower self-esteem, commit more crimes, and
distrust government.


We find qualitatively similar patterns for men and women, for Whites and
non-Whites, and for high school dropouts, high school graduates, and
college graduates (see chart). However, more vulnerable labor market
entrants tend to suffer larger effects. For example, while those with
college degrees suffer an initial earnings loss of about 6 percent when entering the labor market in a moderate recession, high
school dropouts experience an earnings reduction of as much as 15 percent.


But the effects of starting a career in a recession are not limited to
earnings, wages, or job quality. Researchers have documented a broad range
of other economic, social, and even health outcomes. These are likely to
feed back into a worker’s productivity, reinforcing the initial earnings
impacts.


Lower earnings for individuals translate into lower family incomes, lower
rates of home ownership, and—for lower-skilled entrants—higher poverty
rates. This is also reflected in mating patterns: recession job entrants
are more likely to end up in the arms of a spouse experiencing a similar recession-induced earnings reduction.


Social safety net programs such as the Supplemental Nutrition Assistance
Program and Medicaid seem to buffer at least some of these adverse impacts.
Yet researchers have found that recession job entrants report lower
self-esteem, are more likely to drink to excess, and have higher obesity
rates. If these social and health effects feed back into worker
productivity, impacts on economic outcomes might also reappear in the
longer term.


Recession job entrants report lower
self-esteem, are more likely to drink to excess, and have higher obesity
rates.


We dug into data from the US government’s Vital Statistics System, Current
Population Survey, American Community Survey, and Decennial Census going
back to the 1970s. We find that the negative earnings effects from entering
the labor market never fully disappear. For a middle-aged worker, these
losses settle at about a 1 percent earnings decline for every percentage
point increase in the unemployment rate when they start working. With the
unemployment rate in mid-2020 at about 10.5 percent, or 7 percentage points
higher than in the months preceding the crisis, this suggests that by the
time today’s young workers reach the age of 40, they’ll be making 7 percent
less every year than if they had entered the job market last year.


Even more dramatically, we find that mortality rates of recession entrants
start to rise in their early 40s compared with those in luckier groups. A
3.9 percentage point increase in the unemployment rate at job market
entry—roughly the experience for 1982 recession entrants—decreases life
expectancy by 5.9 to 8.9 months. For the class of 2020 entrants facing
almost twice the jobless rate, we estimate that life expectancy will
decline by 1 to 1.5 years.


While the average mortality impact is relatively modest for a given
individual, it can be economically significant in aggregate, especially
during large recessions such as the COVID-19 contraction. The long-term
effects on mortality are mainly driven by disease-related causes—such as
heart disease, liver disease, and lung cancer—which can be linked to
unhealthy lifestyles and stress. There is also a smaller impact on drug
overdose deaths, but no midlife effect on suicide, fatal accidents, or
other external causes.


These negative long-term impacts on the health of recession job market
entrants come with further adverse social and health outcomes. While
members of this group have been found to be more likely to marry and have
children at an early age, family outcomes are less favorable in the long
term. By midlife, we observe lower marriage rates, higher divorce rates,
and fewer children. Recession entrants further report higher rates of work
disability and Social Security Disability Insurance, and they are more
likely to be married to a spouse who receives disability benefits.


Bottom line: Entering the labor market in a recession is associated not
only with significant income losses in the short term, but also with broad
social and health consequences that persistently hurt household finances,
family formation, and longevity. The evidence discussed here is from
industrialized countries, where the data required to study long-term
consequences of an unlucky start are more readily available. Yet unlucky
cohorts might experience even larger or longer-lasting penalties in lower- or middle-income countries, where in addition young people are also at increased risk of dropping out of school. Given the unprecedented
magnitude of the COVID-19 economic contraction, it is more important than
ever to develop policies and individual-level strategies to lessen the
lasting scars for these labor market entrants.


author

HANNES SCHWANDT
is an assistant professor of economics at Northwestern University.

author

TILL VON WACHTER is a professor of economics at the
University of California, Los Angeles.




Opinions expressed in articles and other materials are those of the authors; they do not necessarily represent the views of the IMF and its Executive Board, or IMF policy.



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