Recent College Graduates, Prepare to Starve

Michael Bowler | RSS | Mon, May 18 2009 | 3 Comments

Graduates of the 2009 collegiate year are going out into the unknown in the worst labor market since their parents graduated. Many graduates will get into careers that have nothing to do with their degree, if they get a job at all. With a national average 9% unemployment rate, it is obvious that throwing more job seekers into the market does not provide the best statistics for employment acquisition. Even worse, they will make lower wages for at least the next decade, as opposed to those who graduated in better times, such as 2006 and 2007, before the economy partially disintegrated.

For most 2009 college graduates, luck will be the key. According to Lisa Kahn, a Yale School of Management economist, the damage that can be done to a new career by a recession can last for up to 15 years. She used the National Longitudinal Survey of Youth, a government data base, to assess the effects of a recession on an individual’s career by tracking wages of white men who graduated before, during and after the deep 1980’s recession.

Kahn found that for each percentage-point increase in the unemployment rate, those who graduated and joined the workforce during the recession earned 7% to 8% less in their fields than comparable workers who graduated in better times. The effect persisted over many years, with recession-era grads earning 4% to 5% less by their 12th year out of college, and 2% less by their 18th year out. Basically, someone who graduated in December 1982 when the unemployment rate was at almost 11% made, on average, 23% less his first year out of college and 6.6% less 18 years out than one who graduated in May 1981 when the unemployment rate was under 8%. For a typical worker, that would mean earning $100,000 less over the 18-year period.

According to economists and experts, one reason behind declining wage potential is that the caliber of jobs available in a recession, and their accompanying wages, tend to suffer. High-end firms hire fewer people and drive down salaries because jobs are in high demand and people are likely to accept a job for less and less money. In turn, it also means that many graduates end up with lower-wage, lower-skill jobs at lower quality, less prestigious firms or in firms outside their field of interest. Once the economy picks up and they try for better jobs, these workers have to learn skills they should have been developing immediately out of college. In the meantime, colleagues who graduated in a better economy have already developed these skills and progressed much further, making them more likely to receive a better position.

This year, employers will hire 22% fewer college graduates than last year, according to the National Association of Colleges and Employers, an organization of career counselors. At the same time, colleges are expected to see the highest number of graduates in a decade. The average starting salary for graduates who do get jobs, meanwhile, dropped to $48,515 this spring, down 2.2% from the same time last year. Not to worry though. College education was not for ‘nothing’. Collegiate level employees still make more than those with high school diplomas.

Related posts:
College graduates are finding work in some fields
The Five College Degrees you will see a good ROI on
Student debt is on the rise

Tags: management economist, unemployment rate, recession