Graduates in a Cycle: The Effect of Business Cycle Trajectories on Labor Market Outcomes of College Graduates

Talk by Margarita Pavlova (CERGE-EI) as part of the Research Seminar Series of the IOS Economics Department.

Pavlova re-evaluates the long-term effects of graduating from college during a recession, by focusing on entire business cycle trajectories, as opposed to unemployment at graduation. Using CPS data from 1976–2024, she suggests that the persistent gap in earnings between those graduating during high versus low unemployment chiefly corresponds to the effects of unemployment at graduation on graduates of lower GPA, SAT scores, and socio-economic background, who enrolled in lower-tier colleges because unemployment was high at the time of their college enrollment. While scarring effects of graduating during a recession are large and last for over a decade for these marginal graduates, the scarring effects are smaller than previously thought, and fade within three years for student cohorts enrolling in college in a low-unemployment labor market. She also shows that adverse labor market conditions beyond the year of college graduation exert a stronger influence on long-term outcomes of graduates than the unemployment rate at graduation. Following unemployment trajectories and accounting for selective enrolment highlights the policy-relevant vulnerability of marginal graduates to recessions.