Economic Conditions at College Graduation and Labor Market Outcomes: Evidence from Sibling Pairs

Abstract

My paper examines the impact of national economic conditions at time of college graduation on labor market outcomes over the first decade following graduation, using sibling pairs from the National Longitudinal Survey of Youth 1997 (NLSY97) the Correlated Random Effects (CRE) framework of Ashenfelter and Zimmerman (1997) to control for shared family background. I examine three labor market outcomes: wages, annual weeks worked, and employment status. My paper extends Kahn’s (2010) paper, The Long-Term Labor Market Consequences of Graduating from College in a Bad Economy, not only by controlling for family attributes, but also by examining a more recent time period and expanding the sample on which the analysis relies on. My research yields four main findings. First, family background does not meaningfully bias standard OLS estimates. Second, graduation-year economic conditions have no meaningful effect on wages at any point in the first decade of a career, contrasting sharply with Kahn's finding of large and persistent wage losses. Third, graduating in a worse economy is associated with a small but significant positive effect on weeks worked in the short-run, but not the long-run. Fourth, employment trajectories between siblings diverge significantly over time. These findings suggest that the consequences of graduating in a bad economy are not uniform and cannot be easily generalizable to different time periods or demographic groups.