Study: college graduates from the crisis years have better salaries today

Periods of economic depression, like the one we are currently experiencing, can have positive effects. A scientific study, co-authored by Alena Bicakova of SYRI National Institute and CERGE-EI, found that people who enter college during economic recessions have higher earnings than those who start college in more favorable conditions. They seem to have different values and preferences, which helps them in the labor market.

"The results of our study confirm that economic shocks experienced during early adulthood can lead to lasting changes in values and preferences, which can cause individuals to make important attitudinal changes, such as in their job search. We should take advantage of this fact, for example, by expanding the capacity of universities in times of recession when demand for studies is higher," said Alena Bičáková, who belongs to SYRI's Labour Market Research Group.

Experts analyzed graduates from nearly four dozen U.S. colleges. The study clearly showed a positive relationship between local economic conditions at the time of college enrollment and future annual earnings, especially for women.

"While men and women experience similar increases in hourly wages, we also saw larger increases in annual earnings for women due to increases in the number of weeks worked per year and the number of hours worked per week. In addition, we observe a higher probability of engagement in the labour market among women," added Bičáková.

In the study, the researchers calculate that a 1 pp higher unemployment rate at the time of entering college leads to an increase in annual real earnings of about 0.35% for women and about 0.21% for men, equivalent to $180 per year for women with average earnings and $172 per year for men.

This positive relationship between unemployment rates and future earnings cannot be explained, for example, by the fact that only a selected group of above-average students from classes exposed to adverse economic conditions enter and successfully graduate from college, or by the fact that only a selected group of these graduates, those with above-average earnings, are working. "Nor can it be explained by a change in the choice of college major or a change in the decision whether to pursue graduate education. Nor is the above-average income of graduates from these classes due to potentially better, economic conditions at the time of entry into the labour market. However, almost one-third of the above-average earnings of these graduates can be explained by the fact that they seek employment in higher-income locations after graduation and move there. The results are clearly consistent with a behavioural change that encourages individuals who experience bad economic times at the beginning of their studies to make a greater effort to obtain better-paying jobs," added Bicakova of SYRI and CERGE-EI.

See more: https://www.sciencedirect.com/science/article/pii/S0927537123000866