Thursday, May 25, 2006

Your First Job Matters More Than You Think

If you've just graduated (or are about to) and you have not received a job offer, then you are most likely in good company with many other graduates your age. If so, then frequent trips to your university's career center, searches on, and job interviews will be a large part of your summer.

Austan Goolsbee, an economist at the University of Chicago, asks college graduates to choose their first full-time jobs wisely. Professor Goolsbee summarizes several recent economic papers on the short-run and long-run consequences of graduating in a recession. It is not surprising that graduates in a recession receive lower-paying jobs than graduates in an economic expansion, because there are fewer jobs and even fewer high-paying jobs in a recession than in an economic expansion. However, what is surprising is that recession-graduates perpetually earn less than expansion-graduates over the next ten years!

According to Goolsbee:
The recent evidence shows quite clearly that in today's economy starting at the bottom is a recipe for being underpaid for a long time to come. Graduates' first jobs have an inordinate impact on their career path and their "future income stream," as economists refer to a person's earnings over a lifetime.
In other words, where you start off your career will greatly impact where you end up. Economists call this "path dependence."

1. In a recession, few high-paying jobs are available to college graduates. If you graduate in a recession and settle for a job that pays $30,000 per year, then what stops you from switching to a high-paying job when those jobs become available during an economic expansion?

2. Suppose Chris graduated from Berkeley with a 3.5 GPA in 2001, during a recession. Unable to find a high-paying job, he worked as a waiter for a few years while the economy turned around. When the economy recovered, he applied for a job with a major consulting company. Why might that consulting company hire a new Berkeley grad with a 3.5 GPA rather than Chris?

3. Suppose you have two job offers when you graduate: one as a research assistant for a professor, and another as a lab technician for a pharmaceutical company. The two jobs pay the same amount. What would you expect your career path and future earnings to be if you took the research assistant job? The lab technician job? Which of the two jobs would be harder to get in a recession?

Topics: Labor markets, Unemployment, Costs of business cycles


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