The impact of labor market entry conditions on initial job assignment and wages

Abstract

We estimate the effects of labor market entry conditions on wages for male individuals first entering the Austrian labor market between 1978 and 2000. We find a large negative effect of unfavorable entry conditions on starting wages and a sizable negative long-run effect. Our preferred estimates imply a decrease in starting wages by about 0.9 % and a lifetime loss in wages of about 1.3 % for an increase in the initial local unemployment rate by one percentage point. We show that poor entry conditions are associated with lower quality of a worker's first employer and that the quality of workers' first employer explains as much as three-quarters of the observed long-run wage effects resulting from poor entry conditions. Moreover, wage effects are much more persistent for blue-collar workers because some of them appear to be permanently locked in into low-paying jobs/tasks.

Scars of recessions in a rigid labor market

“…In Europe, e.g. Raaum and Røed (2006) in Norway, Kwon et al (2010) in Sweden, and Brunner and Kuhn (2014) in Austria reach similar conclusions. More generally, existing evidence broadly confirms the conjecture that a recession 1 has persistent impact on labor market outcomes of young graduates, although the magnitude and persistence of these effects depend much on the considered outcome (employment, wage, earnings,...), the level of educational attainment, and the institutional environment (see Section 2).…”

“…If these workers enter the labor market in a boom they obtain faster promotions which leads to persistent wage premiums for such cohorts. Brunner and Kuhn (2014) report that in Austria a one percentage point increase in the unemployment rate decreases the daily wage by 0.9% and persists at least 20 years, but this is again a lower bound of the effect, since the employment rate is also persistently affected by the business cycle. Similar to high educated workers in the US, effects for white collar workers are smaller, and fade after five to ten years.…”

“…For instance, 8 The finding of Brunner and Kuhn (2014) that blue collar workers entering the labor force in an economic downturn are persistently locked in, low-paying jobs and/or tasks may potentially partly be a consequence of lower skilled workers being disproportionately hired as blue collar workers during adverse conditions. some studies assimilate graduation to the first registration as salaried worker according to administrative data.…”

Differential effects of graduating during a recession across gender and race

“…For example, Genda et al (2010) show that the effect of high unemployment at graduation is more negative and persistent for high school graduates than for college graduates in Japan. Furthermore, Brunner and Kuhn (2014) show a more negative and persistent effect for blue-collar workers than for white-collar workers in Austria. On the other hand, Raaum and Røed (2006) find that the effects of the unemployment rate experienced in youth tend to be more persistent for those with advantaged backgrounds in Norway.…”

Do youths graduating in a recession incur permanent losses?

“…As is the case for higheducated workers in the US, the effects are smaller for whitecollar workers and fade after five to ten years. However, in contrast to the US, and possibly related to labor market rigidity, bluecollar workers suffer more and more persistently from a recession [8]. A German study of low to mediumskilled workers graduating from the apprenticeship system finds more persistent effects of a recession on employment and wages than for loweducated workers in the US, but less persistent than in Austria and Japan [9].…”