The economic suppression will hurt today’s graduates for years to come
Times are hard for Minnesota’s graduates. Not only are they being denied their graduation ceremonies by Gov. Walz’ anti-Covid-19 measures, but their prospects beyond that look bleak.
This job market sucks
MPR News reported recently:
More than half a million Minnesotans have filed for unemployment. Meanwhile, Minnesota job postings on Indeed.com, the online employment site, are down about 40 percent from last year.
A recent survey by Handshake, a nationwide job hunting site for college students, found nearly half of students are worried about getting a job when they graduate. With good reason. They see what’s happening to classmates.
“About 11 percent of our students who had a full-time offer had it rescinded, and around 30 percent of juniors and seniors who had an internship had it rescinded,” said Christine Cruzvergara, a vice president at Handshake.
In April, the Congressional Budget Office (CBO) released “preliminary projections of key economic variables through the end of calendar year 2021, based on information about the economy that was available through yesterday and including the effects of an economic boost from legislation recently enacted in response to the pandemic.” For the labor market, the CBO forecast:
The unemployment rate is projected to average 15 percent during the second and third quarters of 2020, up from less than 4 percent in the first quarter…The increase in that rate in the second and third quarters reflects the net effect of a projected loss of nearly 27 million in the number of people employed and the exit of roughly 8 million people from the labor force.
Reflecting that reduction in the labor force, the labor force participation rate…is projected to decline from 63.2 percent in the first quarter of this year to 59.8 percent in the third quarter. As a result, the employment-to-population ratio is projected to decline by about 10 percentage points over that same period.
The labor market is expected to improve after the third quarter, with a rebound in hiring and a significant reduction in furloughs as the degree of social distancing diminishes—leading to an increase in business activity and an increase in the demand for workers. In particular, the unemployment rate is projected to decline to 9.5 percent by the end of 2021. Under that projection, the unemployment rate at the end of 2021 would be about 6 percentage points higher than the rate in CBO’s economic projection produced in January 2020, and the labor force would have about 6 million fewer people.[Emphasis added]
With a strong economic recovery, this might turn out to be on the pessimistic side. As I wrote last Friday, in May “Total nonfarm payroll employment rose by 2.5 million in May, and the unemployment rate declined to 13.3 percent”, which was a pleasant shock. But even there we see bad news: Minnesota was one of three states where the unemployment rose.
The hurt will last a few years
That isn’t the end of it. Empirical research suggests that the effects of graduating during a recession are felt by those graduates for some time.
In a review last year, economist Hannes Schwandt wrote:
Research shows that college graduates who start their working lives during a recession earn less for at least 10 to 15 years than those who graduate during periods of prosperity (Oyer 2006, Kahn 2010, Wozniak 2010, Oreopoulos et al. 2012).
Schwandt and another economist, Till von Wachter, expand their analysis to look at those without college degrees and examine a broader range of metrics than just incomes. They write:
Our first main finding is that high school graduates and dropouts suffered even stronger income losses than college graduates when entering the labor market during a recession. Second, we find that negative impacts on socioeconomic outcomes persist in the long run. In midlife, recession graduates earned less, while working more. And they were less likely to be married and more likely to be childless.
Our third important finding is that recession graduates had higher death rates when they reached middle age. These mortality increases stemmed mainly from diseases linked to unhealthy behaviors such as smoking, drinking, and eating poorly. In particular, we discovered a significantly higher risk of death from drug overdoses and other so-called “deaths of despair” among those who left school during a downturn.
Our results demonstrate that health, mortality, and economic and personal well-being in midlife can bear the lasting scars of disadvantages that come during young adulthood. Simply put, the bad luck of leaving school during hard times can lead to higher rates of early death and permanent differences in life circumstances.
This is a bleak outlook for today’s young Minnesotans. What they need is as strong an economic recovery as possible.
John Phelan is an economist at the Center of the American Experiment.