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College seniors who graduate during a downturn fare worse than those who finish in good times

May 07, 2010|By Greg Burns

CHICAGO — Roosevelt University senior Molly MacPhail is among the many Americans expecting more grim news when the government reports unemployment numbers Friday, but at least she has a plan.

She's heading straight to graduate school, hoping another degree will help her launch a successful career when the economy eventually improves.

"The job market is just so bad," the 22-year-old psychology major said. "There are some jobs available, but competition is just unbelievable."

Does she wonder if grad school will pay off? "Every day," she said.

MacPhail's decision to postpone full-time employment makes good economic sense, according to new research showing that college students who graduate in recessions fare much worse on the job than equally qualified counterparts who finish in good times.

The difference between the recession-challenged Class of 1982 and the fortunate Class of 1989 turned out to be more than $100,000 in earnings over 17 years. Every percentage point increase in the national unemployment rate — now 9.7% — costs the typical graduate 6% or 7% in wages as they start their careers.

Beyond the lack of immediate job opportunities, hard times complicate the efforts of new graduates to get ahead, said Lisa Kahn, the Yale University economist behind the research.

Faced with slim pickings, these grads are less likely to find a good first job out of school, she said. They may receive less training or advancement opportunities as employers pinch pennies in response to the downturn.

On top of that, they tend to stick with their first jobs rather than leaving for potentially better ones. "When you're young, you should move for better pay and better opportunities," Kahn said.

It could be that they're risk-averse. It could be that their skills weren't developed. It could be that better jobs were elusive. But for whatever reason, their timing hurts them, Kahn said.

"They're unlucky. It's interesting to the extent that pure, random luck affects your career," she said.

Of course, college graduates in general are the lucky ones, with higher earnings and lower unemployment rates than the workforce at large. No doubt, some will land their dream jobs straight out of school this year.

But for most, a dreaded "jobless recovery" could make it tougher than ever to bounce back from the initial misfortune of graduating in a downturn.

During the eight recessions between 1947 and 1982, the job market took 20 months on average to fall, hit bottom, then climb back to pre-recession levels, according to economist Lee McPheters at Arizona State University. In the early 1990s, it took 32 months, and in the dot-com bust in the early 2000s, it took 48 months.

This time, the process could take 65 months, McPheters estimates. That means three more years to get back all the jobs lost.

Although Friday's government report is likely to show meaningful job creation, it's no secret that employers have become better at substituting technology for workers, squeezing more productivity out of existing staff and postponing hiring until they've exhausted all other options.

As McPheters put it: "We're trying to get more efficient, and labor bears the brunt of it."

MacPhail plans to bear the brunt of it from graduate school in Arizona, specializing in occupational therapy. Her personal research shows "a dire need" for therapists in the state, and relatively high pay that will help her manage student loans running into tens of thousands of dollars, she said.

It's a choice that preceding generations have made. Those finishing undergraduate degrees in the recession of the 1980s were considerably more likely to obtain a graduate degree, according to Yale's Kahn. The extra schooling gave their paychecks a boost.

Although MacPhail understandably laments the plight of her peers facing hard times — "It's not our fault," she declared — McPheters offers a bit of upbeat news.

Once the economy has limped its way to a comeback, an aging population and efforts to limit immigration will translate into demand for American workers, he said.

"We are going to get to the point where we have labor shortages," he said. "People have forgotten that."

At least it's something for graduating seniors to think about while looking for a job.

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