The Persistent Effects of Initial Labor Market Conditions for Young Adults and Their Sources

Abstract

Unlucky young workers entering the labor market in recessions suffer a range of medium-to long-term consequences. This paper summarizes the findings of the growing empirical literature on this subject and uses it to assess economic models of career development. The literature finds large initial effects on earnings, labor supply, and wages that tend to fade after ten to fifteen years in the labor market, and that are accompanied by changes in occupation, job mobility, and employer characteristics. Adverse initial labor market entry also has persistent effects on a range of social outcomes, including timing and completed fertility, marriage and divorce, criminal activities, attitudes, and risky alcohol consumption. There is also evidence that early exposure to depressed labor market lowers health and raises mortality in middle age, patterns accompanied by a reopening of earnings gaps.

Poverty, income inequality and living standards in Ireland

“…• High and sustained levels of economic inactivity have been shown to have persistent negative effects on later life outcomes for young adults entering the labour market (von Wachter, 2020). We find early evidence consistent with (and suggestive of) such 'scarring' for those born in the 1990s whose average weekly earnings adjusted for inflation were no higher than those born in the 1960s at age 20 to 22, and have by age 26 yet to surpass the average earnings of those born in the 1970s.…”

Constraints and demands on public finances: Considerations of resilient fiscal policy

“…IFIs are public institutions with a mandate to critically assess and, in some cases, provide non-partisan advice on fiscal policy and performance (von Trapp, Lienert and Wehner, 2016 [147]). In contrast to audit institutions, their assessments are forward-looking (Kopits, 2011[148]) and unlike independent central banks, they do not have the authority to make policy.…”

“…In other countries, domestic politics rather than external pressure drove the creation of "home-grown" independent institutions (Beetsma et al, 2018[153]). IFIs in Australia, Canada and the United States were created to increase legislative power over the budgetary process (Steuerle and Rennane, 2013 [154]; von Trapp, Lienert and Wehner, 2016 [147]). In the Netherlands, one of the first adopters globally, the role of the IFI was influenced by concerns about time inconsistency and the common-pool problem in fiscal policy (Bos and Teulings, 2013[155]).…”

Can barely winning lead to losing? Evidence for a substantial gender gap in psychological momentum

“…Within organizations, some form of competition is the rule rather than the exception. Empirical evidence suggests that random shocks during early careers can have long-lasting consequences on subsequent career developments (Oreopoulos et al 2012, Schwandt & Von Wachter 2019, Von Wachter 2020. Similarly, performance feedback in educational contexts can have gender-specific effects (Jalava et al 2015).…”