TheLostGeneration?ScarringaftertheGreatRecession

JesseRothstein1

UCBerkeley,NBER,andIZA

May2019

Abstract:

Iinvestigatemedium-andlong-termimpactsoftheGreatRecessiononpost-recessioncollegegraduates. Most so-called “scarring” models emphasize effects of initial conditions thatattenuateoverthefirstdecadeofaworker’scareer.Butearlycareerrecessionsmayalsohavepermanent effects. I decompose the recent cohorts’ experience into transitory time effects,medium-term scarring, and permanent cohort effects. Cohort effects are strongly cyclical.Medium-termscarringexplainsonlyhalfofthiscyclicality.Thelong-runcumulativeeffectoftherecessionongraduates’employmentismorethantwiceaslargeastheimmediateeffect.

1rothstein@berkeley.edu.IamgratefultoAudreyTiew,RachelYoung,andNathanielRubyforexcellentresearchassistance;toSaraHinkley,RobValletta,TillvonWachter,andDannyYaganforhelpfuldiscussionsandcomments;andtoconferenceandseminarparticipantsatBerkeley,Georgetown,theUniversityofIllinois,LSE,Michigan,NBER,UCBerkeley,andUCMerced.

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I. Introduction

Prolongedunemploymentmayhavelong-runconsequencesforfutureemployabilityand

productivity,perhapsparticularlyso foryoungworkers forwhomweakconditionsmaymean

reducedaccess toon-the-jobexperienceand training.Consistentwith this, collegegraduates

whoenterthelabormarketduringdownturnsare“scarred,”withloweremploymentandwages

throughout theirearlycareers thansimilar individualswhoenteratbetter times (Kahn2010;

Oreopolous,vonWachter,andHeisz2012;SchwandtandvonWachter,2019).

Iexaminethemedium-andlong-runeffectsofthe2007-2009GreatRecessiononnew

entrants’labormarketoutcomes.Followingthescarringliterature,Ifocusoncollegegraduates,

whosehumancapitalisunlikelytohavebecometechnologicallyobsoleteduringthedownturn.

The Great Recession provides a natural laboratory due to its depth and duration. The

unemploymentraterosefrom4.4percentinMay2007to10.0percentinOctober2009,then

didnotreach4.4percentagainuntilMarch2017.Employmentratesworsenedatthesamerate

as unemployment during thedownturn, but havebeenmuch slower to recover; to this day,

prime-ageemploymentremainsbelowitspre-recessionpeak.

Duringthedownturn,newlabormarketentrantshadfewjobopportunities.Jobopenings

wereatleast20percentbelowtheirpre-recessionpeakfornearlyfiveyears,andthehiringrate

remainedsignificantlydepresseduntillate2014.Theshareofindividualsaged20-25whowere

neitherworkingnorinschoolrosebynearlyhalf,from13.1%in2007toahighof19.0%in2013.

Comparingyoungerandolderworkersinthesamelabormarket,theemployment,annual

earnings,andwagesofthosewhoenteredthelabormarketduringandaftertherecessionare

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lowerthanwouldbeexpectedgiventheexperienceofoldercohortsatthesametime.College

graduates whose careers started in 2010 and 2011 have employment rates two percentage

pointslowerthantheage-andtime-adjustedemploymentratesofpre-recessioncohorts,and

thosewhoworkhaveannualearningsthataretwopercentlower.Employmentdeclinespersist

foreventhemostrecentlabormarketentrants,whileannualearningsandwageshaverecovered

sincetheimmediatepost-recessionentrants.

Employmentratesoftherecessionandpost-recessionentrantshaveremainedloweven

inmore recent data,whenolder cohorts have recovered.Accordingly, in an age-time-cohort

decompositionIfindthatpurelytransitoryeffectsaccountforonlyabout40%oftheemployment

declineforcohortsenteringthelabormarketin2009-2011,andnoneofthedeclineforcohorts

enteringlater.Theremainderisattributedtodeclinesincohorteffects.

I next investigate whether existing scarring specifications capture these patterns. An

importantfeatureofthespecificationsthathavetypicallybeenestimatedisthatscarringeffects,

whilelonglasting,arenotpermanent.Theeffectsoftheinitialemploymentratearefrequently

estimated todissipateby the individual’s10thyear in the labormarket (e.g.,Borgschulteand

Martorell 2018; Kahn 2010;Oreopoulos et al. 2012). Thus, insofar as thesemodels correctly

characterizethescarringeffectoftheGreatRecession,theyimplythatmuchofthedamageto

thepost-recessioncohortshasalreadybeenborne,andthattherecessionwillnotcastalarge

shadowgoingforward.

IreproducescarringestimatesonemploymentinCurrentPopulationSurveydata,using

similarspecificationstothoseusedbypreviousauthors.GreatRecessionscarringiscloselyinline

withextrapolationsofestimatesbasedonpre-2007data.WhetherIusethefullsampleorjust

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thepre-recessionsubsample,Ifindmeaningfulmedium-termscarringthatfadesoutoverseveral

years.However,thisaccountsforonlyabouthalfofthedepressedemploymentoftherecent

cohorts,relativetoothercohortsinthepost-recessionlabormarket.Theremaindermanifests

aslowercohorteffectsfortherecentcohorts.Thesecohorteffects,whichhavegenerallybeen

treatedasnuisanceparametersinpastscarringwork(e.g.,Oreopoulosetal.,2012),captureany

effectofearlycareerconditionsthatdoesnotfadeoutovertheearlycareer.Ishowthatthese

effectsarecyclicalevenwhenmedium-termscarringiscontrolledseparately,andrepresenta

quantitativelyimportantcomponentoftheeffectsofrecessions.

I closewith a calculation of the contribution of these long-lasting effects to the total

cumulative impact of the Great Recession, extrapolating the cohort coefficients through the

decadesremainingintheaffectedcohorts’potentialcareers.Myestimatesimplythat,through

a combination of short-,medium-, and long-run effects, theGreat Recessionwill reduce the

employment rates of college graduates over the 2007-2060 period by a total of over 15

percentagepoint-years.Nearlyhalfof this loss reflectsmedium-and long-termeffectsof the

recessionthatmanifestafter2014,whentheunemploymentratewasnolongerelevatedbut

workerscarrythescarsoftheearlierperiod.Themedium-termeffectswillgraduallyfadeover

thenextfewyears,whilethelong-runeffectswillpersistaslongastherecessionentrantsremain

inthelabormarket.Cumulatively,thelatteraremuchmoreimportantthantheformer.Effects

thatwillmanifestafter2025accountfornearlyone-thirdofthetotaldamage.

Thisevidencesupportstheviewthatbusinesscycleshaveimportanthysteresiseffects.

DeLongandSummers(2012)arguethatifpost-recessionhangoversarelargeenoughcounter-

cyclical fiscal policies canbe self-financing.Myestimatesof permanent effects onnew labor

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marketentrantscaptureonlyasmallcomponentofpotentialhysteresis–andthusshouldbe

addedtoYagan’s(forthcoming)complementaryevidenceofeffectsonolderworkers–butare

ontheirownlargeenoughtoimplyameaningfulfiscaloffsetforcountercyclicalpolicies.

II. TheGreatRecessioninthelabormarket

Theunemploymentrateroseby6.5percentagepointsbetweenmid-2007andlate2009,

(AppendixFigureA-1). It thendeclinedroughly linearlyaftermid-2010. Ithasbeenbelow6%

sincethethirdquarterof2014andbelowitspre-recessionlevelsinceearly2017.

Theprime-age(25-54)employmentratefellbyoverfivepercentagepointsbylate2009,

andwasmuchslowertorecover.Onlyhalfofthedeclinehadbeenerasedbytheendof2015;at

thiswritingtheemploymentrateis79.8%,stillhalfapointbelowthe2007peak.

Youngpeoplefaredparticularlypoorly.ThefirstpanelofFigure1showstheemployment

rateseparately for thoseaged25-30andthoseaged31-54.Youngerworkers’employment is

muchmorecyclicallysensitivethanthatofolderworkers;theiremploymentratefellmorethan

fivepercentagepointsduringtheGreatRecession,thenrecoveredrelativelyquickly.Thesecond

paneldistinguishescollegegraduatesandnon-graduateswithinthe25-30group.Employment

ratesarehigherandlesscyclicalforcollegegraduates.However,thegraduateemploymentrate

declinedsubstantiallyduringtherecession,thendidnotreboundatallthroughthefirstseveral

yearsoftherecovery.Bytheendof2014,non-graduateshadmadeupone-thirdoftheground

lostduringtherecession,whileyounggraduates’employmentwasstillbelowitsend-of-recession

level.

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FigureA-2showsaveragerealhourlywagesforthesamegroupsbrokenoutinFigure1.

Allfourmeanwageseriesfellaftertherecession(thoughnotduringit,duetochangesinthe

compositionofworkers; seeDaly,Hobijn, andWiles2012),witha largerdecline for younger

workersandsimilardeclinesforyounggraduatesandnon-graduates.Olderworkers’wageshave

more than recovered in recent years, but young workers’ wages, both graduates’ and non-

graduates’,haveonlyapproachedtheir2007 localmaximaandremainwellbelowtheir2000

peaks.Incontrasttotheemploymentseries,however,therecoveryofgraduates’wageswasnot

meaningfullyslowerthanthatofnon-graduates.

III. Scarringandhysteresis

Aninfluentialliteratureexaminesthepersistenteffectsoflabormarketconditionsatthe

timeoflabormarketentry(e.g.,Kahn2010;Oreopoulosetal.2012;SchwandtandvonWachter,

2019;BorgschulteandMartorell2018;Oyer2006,2008).Thisresearchgenerallyfindssizable

persistenteffectsonemployment,wages,andearningsthatfadeoutoverthedecadefollowing

graduation.1Oneinterpretationisthatnewgraduatesaredelayedinbeginningtoclimbthejob

ladderduringrecessions;anotheristhatlabormarketweaknessatcareerstarttranslatesintoa

weakbargainingpositionformanyyearsthereafter(BeaudryandDiNardo1991).Manyofthe

specificationsusedinthiswork(e.g.,Oreopoulosetal.2012)includecohorteffectsascontrols,

but treat them as nuisance parameters, focusing on interactions between the entry

1Anotherrelevantliteratureexaminestheeffectsofjobdisplacementonsubsequentearnings(Jacobson,LaLonde,andSullivan1993;vonWachterandBender2006;Schmieder,vonWachter,andHeining2018).Thesestudiesalsofindpersistenteffects.DavisandvonWachter(2012)findthatthedisplacementeffectislargerinrecessions.

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unemploymentrateandearly-careerpotentialexperience indicators. Incontrast, Iemphasize

thecohorteffectsaskeycomponentsofthepersistenceofrecessionimpacts.

The so-called “scarring” studies are a small component of an immense literature

examininghysteresismoregenerally.ClarkandSummers(1982)concludeparticipationisfairly

persistent:“Workersdrawnintothelabourforcebycyclicalupturnstendtoremainevenafter

theboomhasended.Theconverseistrueforshockswhichreduceemployment,”(p.842).Yagan

(forthcoming) findsthatworkers inareasthatexperienced largerGreatRecessionshockshad

worse outcomes 6-8 years later, not attenuated bymobility to healthier labor markets.My

analysiscomplementsYagan’sbyexaminingyoungworkers–hisestimatesarebasedonworkers

alreadyover30in2007–andrelatingthepersistentimpactsoftheGreatRecessiontothoseof

pre-2007fluctuations.

IV. Data

IuserepeatedcrosssectiondatafromtheCurrentPopulationSurvey(CPS)toexamine

individuals born between 1948 and 1995 and observed at ages 22 to 40 between 1979 and

November2018.

Myprimaryoutcomeistheemploymentrateofyoungworkers,measuredinthemonthly

CPS.Ialsoanalyzelogrealannualearnings,fromtheAnnualSocialandEconomicSupplement

(theMarchCPS),andlogrealhourlywages,fromtheCPSOutgoingRotationGroup(ORG),for

thosewithpositiveweeklyorannualearnings.Dataprocessinganddefinitionsarediscussedin

theAppendix.

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Foreachoutcomeandsample,Iaggregatetotheeducation-state-year-birthcohortcell.I

usetwoeducationgroups:Bachelor’sdegrees(BAs)andabove,andlessthanaBA.Followingthe

scarringliterature,Ifocusontheformer,butIpresentresultsforthelatteraswell.Imergeonto

eachcellthecontemporaneousstateunemploymentrateandtheunemploymentrateintheyear

ofthecohort’slabormarketentry.2

Thereare three important limitations to theCPSdata formypurposes.First, Idonot

observethedatethatarespondentfirstsearchedforwork.Followingthescarringliterature,I

use the unemployment rate at age 22 (18 for non-graduates). This abstracts from potential

endogeneityintheentrydate.

Second, Iobserveonly the respondent’s current stateof residence,notwherehe/she

lived at labor market entry. Schwandt and von Wachter (2019) explore the bias in similar

specificationsfromfailingtomeasurelocationasofgraduation,andconcludethatitis“unlikely

tobeverylarge.”IexploresensitivitytomobilityintheAppendix.

Third,someofthoseobservedwithoutdegreesat22willearnthemlater.Thiscreates

differentialselectionbyageinthepopulationsoverwhichmeanoutcomesarecomputed.Figure

A-3showsthegraduatesharebybirthcohortandyear.Thedegreeattainmentratefor22-year-

oldsisonlyhalforone-thirdofwhatwillbeseenforthesamecohortatage30.Forcohortsborn

in the 1960s, the greatmajority of degreeswere earned by age 24. Therewas a substantial

increase inpost-24degreeattainmentaround the1968birthcohort (turning22 in1990; see

Bound,Lovenheim,andTurner2012),butstillthegreatmajorityofdegreesareawardedby26.

2Stateunemploymentratesareavailableonlyfrom1976;forcohortsthatenteredbeforethisdate,Iusethenationalrate.

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Since themid-1990s, final attainmenthas grown substantially,withmostof this growth is in

degrees awarded by age 24.3 There is no indication of a surge in attainment among Great

Recessioncohorts(thoughotheranalyses,notshownhere,indicatethatthereareincreasesin

collegegoingthatevidentlydoesnotleadtoaBAdegree).Together,thesefactsmakeitplausible

thatageeffects,includedinallofmyspecifications,willabsorbmostofthebiasincohortmean

outcomesaveragedacrossvariousages.

I take twoapproaches tominimizing remaining compositionbias. First, I include inall

regressionsaninverseMillsratiocomputedfromthecohort-by-ageattainmentrate(or,fornon-

graduates,fromitscomplement).Becausemyspecificationsincludebothcohortandageeffects,

thecoefficientonthiscontrol is identifiedfromchanges intheattainmentrateoveragethat

differacrosscohorts.Inasimplebivariatenormalselectionmodel,thiswillabsorbanybiasfrom

changing selection (Gronau 1974, Card and Rothstein 2007). Second, I have reestimatedmy

primaryspecificationsexcludingobservationsfromagesunder24.Resultsarelargelyunchanged.

V. Methodsandresults

A. Age-time-cohortdecomposition

LetYsatcrepresenttheemploymentrateofcollegegraduatesinstatesatageaintimet

frombirthcohortc(indexedbytheyearthatthegroupenteredthelabormarket,orc=t-a+22).I

estimateage-time-cohortdecompositions:

3Post-24degreesmaybegrowingforthepost-1988birthcohorts(aged24after2012).Itwillbeseveralyearsuntilwecanfullymeasurethis,andinthemeantimeithaslittleimpactonmyCPSsamples.

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!"#$% = ' + )$ + *# + +% + ," + -. /#$% + 0"#$%. (1)

Here,)$areasetoffixedeffectsforyears,*#areageeffects,and+% arebirthcohortfixedeffects.

,"representsstateeffects,while. ⋅ istheinverseMillsfunctionappliedtothestate-cohort-

ageattainmentrate,/#$%.Thetimeeffects)$capturebothaggregatedemandandanysupply-

side factors that are common across age groups, potentially including the hysteresis effects

documented by Yagan (forthcoming). Cohort effects +% are permanent, and capture any

differences between one birth cohort and another in the same labormarket, beyond those

reflectedintheageprofile*#.

Thefullsetofage,time,andcohorteffectsisnotidentifiedduetothelineardependency

amongthem(see,e.g.,Schulhofer-Wohl,2018).Inormalizethecohorteffectsforthe1991and

2000entrycohorts(bornin1969and1978,respectively)tobeequal.Thisforcestheestimated

trendtobezeroacrossthesecohorts;allestimatescanbeseenasrelativetothetruetrendover

thisperiod.Myanalysesofcohorteffectsalwaysincludeordifferenceoutlineartimetrendsto

absorbthisnormalization.

I am interested in the degree to which poor employment rates of young graduates

following the 2007-2009 Great Recession can be attributed to transitory demand shocks,

capturedby)$ inequation(1),versuspermanentdifferencesbetweenpost-recessioncohorts

and other cohorts facing the same demand conditions, which would appear in+%. To avoid

confoundingtheageandtimeeffectswiththeexperienceofpost-recessioncohorts,whoare

observed only when young, inmy preferred specifications I estimate (1) using data only on

cohortsenteringthemarketin2000andearlier.Ithenholdthe)$and*#vectorsfixedwhen

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estimating the cohort effects formore recent birth cohorts. I obtain nearly identical results,

however,whenIsimplyestimate(1)ontheentiresample.

ThesolidlineinFigure2showsthecohorteffectsfromthebasicspecification,appliedto

collegegraduatesandusingonlypre-recessioncohortstoestimatetimeandageeffects.4Cohort

effectsarelargelystable,decliningslightlybutsmoothly,fortheentrycohortsbetween1975and

2004.Theoverallslopeisdefinedbymynormalizationandnotbythedata,sothesmoothdecline

couldequallywellbeanincrease.However,anychangeintheslopeisidentified.Thereisasharp

downwardturnforcohortsenteringafterabout2005.Thecumulativedeclinefromthe2004to

the2015cohorts,relativetotheslopebetween1993and2004,isnearlyfivepercentagepoints,

withmostofthisdeclineoccurringbetween2006and2010.Therearealsosmallerdeclinesin

cohorteffectsinearlierrecessions.

Although themost recent cohorts– those turning22after2014–have faceda labor

marketthatwasmuchstrongerthanthatfacedby2009-2012entrants,theyhavenotrecovered

anyofthe lostground,andcontinuetofarequitepoorlyrelativetopastcohortsobservedat

similarages.Bycontrast,thepuretimeeffects(FigureA-5)hadfullyrecoveredtheir2007levels

by 2014. In other words, the model indicates that the slow recovery of college graduates’

employment(shownasthesolid line inFigureA-5)since2011isnotevenlydistributedbut is

specifictoyoungercohorts.Oldercohortswhowerealreadyestablishedinthelabormarketby

2007hadfullyrecoveredby2013.

4FiguresA-4andA-5showtheageandtimeeffects,respectively,whileFigureA-6showsthatcohorteffectsarenearlyidenticalwhenthefullsampleisusedtoestimate(1).

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B. Excesssensitivityandscarring

In specification (1), the decline in cohort effects seen in Figure 2 implies that post-

recession cohortswill have lower employment rates in every year of their careers than pre-

recessioncohorts,afteradjustingforanydifferencesintimeeffects.Inotherwords,therecession

has a large, permanent scarring effect, totaling four to five percentage points, on the post-

recessioncohorts’annualemploymentrates.

However,equation(1)doesnotallowfortwoalternativeexplanationsthatwouldpoint

torosierfutures.First,youngpeople’semploymentismorecyclicallysensitivethanthatofolder

people.Becausethepost-recessioncohortsareobservedonlyatyoungages,andprimarilyat

timeswhen the unemployment rate is high, excess sensitivitywouldmanifest as downward-

biasedestimatedcohorteffectsforthesecohorts.

To address this, I augment (1) with unemployment rate-age interactions. I create a

sequenceofageindicatorsgj(a),j=1,…5,whereg1(a)isanindicatorforages22-23,g2(a)for24-

25,g3(a)for26-27,g4(a)for28-29,andg5(a)for30-31.Ithencontrolforinteractionsbetween

theseindicatorsandURst:

!"#$% = ' + )$ + *# + +% + ," + -. /#$%

+ 34 5 ∗ 78"$ ∗ 94:4;< + 78"$ − 78$ > + 0"#$%. (2)

Ialsoincludeamaineffectforthedeviationofthestateunemploymentratefromthenational

rate, 78"$ − 78$ ,tocaptureeffectsoflocalconditionsonthoseaged32andover.5

5The94 coefficientsareinterpretedastheeffectofthestateunemploymentrateonthosefromagegroupj,relativetoitseffectonthoseover32.Becausetheunemploymentratemaineffectisspecifiedasthedeviationofthestatefromthenationalrate,thetimeeffects)$captureanyeffectofthenationalunemploymentrateonthoseaged32andolder.Thus,thespecification

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Theestimated94s areplotted,with confidence intervals, in Figure3A. They show the

expectedexcess sensitivity:Employmentof theyoungestcollegegraduates fallsbyabout0.5

percentagepoint forevery1.0percentagepoint increase in theunemployment rate,but the

effectdeclinesroughlylinearlywithage.

These estimates are based on the pre-recession cohorts, so generally on lower early-

careerunemploymentrates thanprevailedduring theGreatRecession.Thedots inFigure3A

showestimatesbasedonthefullsample.Theseindicatesomewhatmoresensitivity,suggesting

thattheyoungestgraduatesdidevenworsethanexpectedduringtheGreatRecession.Butthe

extrapolationfrompre-2007patternsgenerallyworkswell.

Theshort-dashedlineinFigure2showstheestimatedcohorteffectsfromspecification

(2).Theadjustmentmakesonlyamodestdifference,withslightlybettercohorteffectsforthe

2001to2010entrycohorts.Itdoesnothingtoimprovetheestimatedcohorteffectsforthemost

recententrants–notsurprising,sincetheunemploymentratehasnotbeenelevatedduringmost

of their time in the market. Overall, this specification does not indicate that the apparent

downturnincohorteffectsinthebasespecificationwasanartifactoffailingtoallowforexcess

sensitivityofyoungerworkerstoeconomicconditions.

A second explanation for the apparent decline in cohort effects is that the recession

cohortsmayhavebeenscarredbytheirinitialexperiencesbut,asimpliedbypastestimates,the

scarringeffectwillfadeawaywithage.Becausethepost-recessioncohortsareobservedonlyat

young ages, the estimated cohort effects from specification (1) will reflect the early-career

allowsthenationalunemploymentrateandthestatedeviationfromthattohavedistinctmaineffects,butforcestheirageinteractionstobethesame.

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impactsofelevatedunemploymentin2007-2015,andmayoverstatethepermanentdamageto

thepost-recessioncohorts.

Again,Iaddressthisbyincludingtermsinthedecompositionthatalloweffectsofentry

conditions to fade out gradually. The specification replaces the contemporaneous

unemploymentrateURstin(2)withtheunemploymentrateatlabormarketentry(i.e.,atage

22),UR22sc:

!"#$% = ' + )$ + *# + +% + ," + -. /#$%

+ 34 5 ∗ 7822"% ∗ @4:4;< + 7822"% − 7822% > + 0"#$%. (3)

The@4 coefficientsrepresentage-cohort-stateinteractions.6Thus,thismodelhastwowaysthat

economicconditions inthefirstyearofthecareercanhavepersistenteffects:Theycanhave

medium-term consequences through the @4 coefficients, and they can have permanent

consequencesviathecohortcoefficients+%.

Medium-termpersistenceisimportantlydifferentin(2)and(3).In(2),atransitoryshock

inthasauniformeffectvia)$andadditionaleffectsonthoseinthefirsttenyearsoftheircareers

through94,butnoneoftheseeffectspersistint+1.In(3),ashockhasthesameuniformeffect

via)$ butmay have additional effects on the newest entrants; if so, these workers remain

damagedforuptotenyears.Bycontrast,thosewhoenteredint-1facenopersistentdamagein

t+1orthereafter.Inprinciple,aspecificationwithbothtypesofpersistenceisidentified,butin

6Asbefore,Iomitaninteractionwiththeindicatorforthoseaged32andabove,andIincludeamaineffectfortheunemploymentrateatcohortentry,deviatedfromthenationalrateinthatyear.Thisensures thatanypermanenteffectsof thenationalunemployment rateatentry iscapturedbythe+% cohorteffects,whileallowingthedeviationofthestatefromthenationalunemploymentratetohaveitsowneffectthrough>.

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practicethetwoaredifficulttodistinguishaseachpredictssustainedpooroutcomesforyoung

workers.

Figure3Bshowstheestimated@4 coefficientsfrom(3).Weseestrongeffectsofinitial

conditionsonearlycareeremployment,fadingoutoveraboutsixyears.7Again,theseareslightly

largerbutbasicallysimilarwhen I includethepost-recessioncohorts in thesampleaswhen I

extrapolatefromearliercohorts,indicatingthatnonlinearityintheunemploymentrateeffectis

notamajorsourceofbias.

Thecohorteffectsfromthisspecification,plottedaslongdashedlinesinFigure2,show

a smaller, though still quantitatively important, decline in the period surrounding the Great

Recession. This indicates that the earlier specifications may have overstated the degree of

permanent damage by failing to allow for persistent but non-permanent effects of entry

conditions. In theadjusted series, there is still a sharp change in the series around the2005

cohort,butthesubsequentdeclineismoregradualandlinear.Thedeclinefrom2006-2010is

60%aslargeasinthebaselinespecification.Declinesincohorteffectsduringpriorrecessionsare

alsoattenuated.

AppendixFigureA-13showscohorteffectsseparatelyformenandwomen,usingversions

ofspecifications(1)and(3)thatinteractage,cohort,andscarringvariableswithgender.Figure

A-12showstheassociatedscarringcoefficients.Thepost-recessiondeclineincohorteffectsis

larger for women than for men though apparent for both; semi-transitory scarring is more

7Itispossiblethatthelater-agescarringcoefficientsareattenuatedduetogeographicmobility.My@4 estimatesaresimilarwhen,followingvonWachterandHeisz(forthcoming),IinstrumentforURscwithameasurethatabstractsfrommobility.Seetheappendix.

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importantformenthanforwomen,butevenwhenitisaccountedforweseedeclinesinboth

maleandfemalecohorteffectsfollowingtherecession.

C. Cyclicalityofestimatedcohorteffects

Toquantify the cyclicalityof the cohorteffects in Figure2, Table1 shows time series

regressionsof the threesetsofestimatedcohorteffectson thenationalunemployment rate

whenthecohortwas22,controllingforaquadratictimetrend(whichabsorbsthenormalization

ofthecohorteffects).Standarderrorsallowforautocorrelationoftheerrortermsatuptothree

lags.

Column1showsresultsfortheinitialdecomposition,(1).Eachpercentagepointincrease

intheunemploymentrateatthetimeoflabormarketentryisassociatedwitha0.22percentage

pointpermanentdeclineinthecohortemploymentrate.Thisisonlyslightlyreducedwhenthe

specificationallowsforexcesssensitivitybutdeclinesto-0.11andbecomesinsignificantwhenit

allowsforfadeoutofearly-careerscarringeffects.Inotherwords,medium-termscarringeffects

accountforabouthalfofthecyclicalityofscarringeffectsfrom(1);theremainderareimprecisely

estimated but still appear modestly cyclical. As I discuss below, the remaining response is

quantitativelyquiteimportant.

Column4presentsresultsfromaspecificationthatcombines(2)and(3),allowingforboth

excess sensitivityandearly-career scarring. In this specification, the94 coefficients, capturing

excesssensitivity,aresimilartothoseseeninFigure3A,butthe@4 coefficientsarenearzero.

Cohorteffectcyclicalityisasinspecification(2).

ThelowerrowsofTable1,PanelA,comparetheestimatedimpactoftheGreatRecession

towhatthecyclicalsensitivitymodelwouldpredict,bycomparingthechangebetweenthe2006

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and2010entrycohorts,relativetothatbetweenthe2002and2006cohorts,tothepredicted

change.Themodelcapturestheexperienceofthe2010cohortreasonablywell,thoughincolumn

3thepredicteddeclineissomewhatlargerthantheactualone.8This isanindicationthatthe

parameters of the decompositions (1)-(3) are reasonably stable through theGreat Recession

period–estimatesbasedonpre-recessioncohortspredictaccurately theexperienceofmore

recentcohorts.

D. Earningsandwages

Ihavealsoconductedparallelanalysesoflogannualearningsandloghourlywages,in

eachcaseconditionalonemployment.EstimatesareshowninFiguresA-7andA-8.Cohorteffects

onannualearningsdeclinenotablyforthe2007-2012entrycohorts,whileonlythe2009entry

cohortseesadeclineinhourlywages(netoftransitorytimeeffects).Ifindstrongerevidenceof

excesssensitivityandscarringeffectsonhourlywagesthanonannualearnings,thoughforeach

outcome allowing for scarring dramatically improves the estimated cohort effects for post-

recessionentrants.

ThelowerpanelsofTable1showtheassociationbetweeneachsetofcohorteffectsand

the entry unemployment rate. Earnings but not wages covary with unemployment at entry,

thoughtherelationshipisnotlargeandisonlymarginallystatisticallysignificant.Cyclicalityof

earningsisnotablyreducedwhenIallowforeitherearly-careerscarringor(especially)forexcess

8Thedownturnincohorteffectsappearstostartbeforethe2006cohort,perhapsanindicationthatconditionsthroughouttheearly20s,notjustthoseatage22,canhavescarringeffects.Mycalculationoftherecessioneffectasthechangeintrendin2006isthusconservative,particularlyinspecification(3)wherethedeclineincohorteffectsisfairlysmooth.

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sensitivity.EarningsofthepostGreatRecessioncohorts,whenemployed,arenotablybetterthan

wouldbepredictedbasedonpastcyclicalpatterns.

E. Non-collegeworkers

Appendix Table A-1 shows parallel analyses for non-college workers, relating cohort

effectsonemployment,wages,andearningstotheunemploymentratewhentheywere18years

old. There is little indicationof cyclicalityof cohorteffectsonanyoutcome.There ismodest

evidence of medium-term scarring on non-graduates’ wages and employment, but little for

earnings(AppendixFiguresA-9,A-10,andA-11).Cohortsthatenterthemarketduringrecessions

have lower employment andwages for the first several years of their careers thando those

enteringatlow-unemploymenttimes(consistentwithSchwandtandvonWachter,2019),butin

thelongruntheirwagesareifanythinghigher.

VI. MeasuringtheshadowcastbytheGreatRecession

TheresultsinTable1andFigure2indicatethatrecessions,andtheGreatRecessionin

particular, have hangover effects on college graduates’ employment rates. About half of the

cyclicality isaccounted forbymedium-termscarring,butaportion remainsevenafter this is

accountedfor.Thisportion,because it ispersistent, isquantitativelyextremely important.To

illustrate this, I use the estimated year, medium-term scarring, and cohort effects from

specification(3)toforecastthecumulativeshort-,medium-,andlong-termeffectsoftheGreat

Recession on college graduates’ employment. This is conservative – any of the other

specificationswouldassignlargerrolestodeclinesincohorteffects,andthusindicatelargerlong-

termeffects.

18

Isimulateastylizedversionofthelabormarketforcollegegraduatesfrom2000through

2060.Iassumethatallcohortsarethesamesize,andthatallworkersenterthemarketat22and

retireat65.Toforecastthefuture labormarket, Iassumethatyeareffects)$ reverttotheir

2005-2007averagefrom2015through2060,thattheunemploymentrateissteadyat4.0percent

throughoutthatperiod,andthatcohorteffects+% forpost-2014entrantsreverttotheaverage

for the 2005-2007 entrants. To measure the effect of the Great Recession, I compare to a

counterfactualsimulationthatshutsofftheGreatRecessionbyimposingthisstabilityfrom2008

forwardratherthanjustfrom2015.Theassumedyearandcohortpatternsinthetwosimulations

areshowninAppendixFigureA-12.

ThefirstpanelofFigure4showsaverageemploymentratesofcollegegraduates,age22-

65,underthetwoscenarios.Theycoincidethrough2007,declininginthe2001recessionand

then recovering. In theobserved series, employmentplummets in theGreatRecession, then

recoversabouttwo-thirdsoftheloss.Beginningin2015, itbeginsslowlytrendingdownward.

This reflectsmyassumptionthat futurecohortswill resemble theones thatentered in2005-

2007.Thesecohortshaveloweremploymentratesthanearliercohorts(Figure2),soastheolder

cohortsgraduallyretirethelaborforceaveragetrendsdownward.

The second series shows the counterfactual no-recession scenario.We see the same

gradualdeclinefrom2015onwardasinscenario1,butfromahigherlevel.Thetwoseriesmove

approximately in parallel from 2015 through themid-2050s, when the cohorts that entered

followingtheGreatRecessionwill retire,andthenfinallyconverge. Integratingthedifference

betweenthem,thecumulativeeffectoftherecessionis15.5percentagepoint-years,ofwhich

19

only7.9percentagepointsoccursbetween2007and2014.Theremaining7.6percentagepoints

representsthemedium-andlong-termshadowoftherecession.

TherearethreecomponentstotherecessioneffectindicatedinpanelA,reflectingthe

threetime-varyingtermsinequation(3).PanelBshowsthepureyeareffects)$.Thesearethe

short-termdirecteffectsoftherecession,commontoallparticipantsinthelabormarketatthe

same time but evaporating after it ends. By construction, these are stable after 2014. The

integratedgapbetweenthetwoseriesbetween2008and2014is6.4percentagepoint-years.

PanelCshowsthemedium-termscarringeffects,representedbythecoefficientsA4 in

(3).Thesearespecifiedtolastbeyondtheinitialshockforthosecohortsthatwereexposedtoit

at labormarketentry,buttofadeoutwithintenyears.Totranslatethese intoeffectsonthe

overall labormarketatapoint intime, Iaverage 34 5 ∗ 78"% ∗ @44 overallcohorts inthe

labormarketinthatyear.TheseaveragesaregraphedinPanelC.Thegapbetweenthetwoseries

issmallbecausetheaffectedcohortsareasmallshareofthelaborforceatanytime,andbecause

the@4 coefficientsarenot largetobeginwith.Theseriesnearlyconvergeby2020,asthe@4

coefficients are near zero for those six or more years into their careers. Cumulatively, the

medium-term scarring effects reduce employment by 1.8 percentage point-years, over one-

quarteraslargeintotalastheshort-termeffect.

PanelDshows long-runeffectsoperatingthroughthecohortcoefficients+%,averaged

overallcohortsinthelabormarketineachyear.Theydeclinesteadilyinbothscenariosoverthe

entireperiod,duetothecompositioneffectmentionedabove.Butthereisagapbetweenthe

twoscenariosoverthedurationofthecareersofthe2008-2014entrycohorts.Thegapisnot

largeinanyyear(thoughitislargerthanthemedium-termeffectsinPanelC,evenattheirpeak),

20

butitlastsfordecades.Itintegratesto7.3percentage-point-years,almostone-thirdlargerthan

theshort-termeffectinPanelBandquadruplethecumulativesizeofthemedium-termscarring

effectsinPanelC.

DeLong and Summers (2012) define a hysteresis parameter C, representing the

permanentdeclineinfutureoutputperunitcurrentcyclicalreduction.Usingarealdiscountrate

of2.5%,themedium-andlong-termeffectsfromFigure4,1.8and7.3percentagepoint-years,

respectively, are equivalent in present value terms to a constant, permanent reduction in

employmentof 0.14percentagepoints. Comparing to the short-termeffects, 6.4percentage

point-years, thisyieldsC =0.14/6.4=0.022.9This isat the lowerendofDeLongandSummers’

(2012)“plausiblerange,”butisneverthelessquantitativelyimportant:TheyconcludethatwithC

= 0.025, fiscal stimulus is fully self-financing through its impacton future tax revenues if the

multiplier is at least 1.0 and the real government borrowing rate is less than 3.7%, and

substantiallyself-financingfor lowermultipliersand/orhigherborrowingrates.Moreover,my

estimates capture only a single, limited source of hysteresis: They should be added to any

persistenteffectsoftherecessiononanyworkerswhowerealreadyinthelabormarketwhen

therecessionbegan,suchasthosedocumentedbyYagan(forthcoming),andtoanynon-labor-

sidesourcesofhysteresis.Theimplicationisthatavoidedlong-runconsequencesofdownturns

canmakeasubstantialcontributiontowardthepresent-valuecostofcountercyclicalpolicy.

9 With higher discount rates of 5% or 10%, the permanent equivalents are 0.19 and 0.21percentagepointreductionsperyear,andCrisesto0.029or0.033,respectively.

21

VII. Conclusion

TherecentU.S.economy,havingfinallyemergedfromadecade-longslump,exhibitsboth

historicallylowunemploymentandanunimpressiveemployment-populationratio,particularly

foryoungcollegegraduates.Ifthelatterisaconsequenceofthe2007-2009recession,thishas

importantimplicationsfortheeconomiccostofcyclicalvolatility.

Myanalysisofcollegegraduates’employmentratesindicatesthattheyaresensitiveto

theeconomicconditionsthatprevailedatthetimethatthegraduatesenteredthelabormarket.

Cohortsthatgraduateduringrecessionshaveloweremploymentratesevenaftertherecession

ispast.

Pastresearchhasemphasizedpersistenteffectsthatfadeoutoverthefirsttenyearsafter

graduation.However,theexperienceofthecohortsthatgraduatedcollegeduringandafterthe

GreatRecessionhasnotbeenconsistentwiththat:Theiremploymentrateshaverecoveredmuch

moreslowlythanwouldbepredictedbasedontheseso-calledscarringeffectsalone,giventhe

lowoverallunemploymentsince2015.Myanalysishighlightsthatcohorteffectsareasecond

channel,previouslyoverlooked,bywhichearlycareerweaknesscanhavelong-termeffects.This

channel,becauseitissopersistent,isbyfarthemorequantitativelyimportant.

Ifanything,theGreatRecessioncohortsaredoingbetterthanwouldbepredictedbased

onthelong-runrelationshipbetweenentryconditionsandcohorteffects.However,eventhis

better-than-expectedperformanceimpliesanenormoushangoverfromtherecessionthatwill

persistfordecadestocome.Itisconcentratedontheemploymentmargin,withsomeeffectas

wellonlogannualearnings,andamongcollegegraduates.Althoughitwillbemanyyearsbefore

wecanmeasurethiseffectconclusively,theevidencetodatepointstolong-termeffectsofthe

22

recessiononcollegegraduates’employmentthatarenotablylargerthantheshort-termeffect.

Thistypeofhysteresisisanimportantcomponentoftheimpactofcyclicalvariationineconomic

conditions. The imperative tominimize it constitutes a strong argument for counter-cyclical

policiesaimedatminimizingtheinitialshock.

23

References

Beaudry,Paul,andJohnDiNardo(1991)."Theeffectofimplicitcontractsonthemovementofwagesoverthebusinesscycle:Evidencefrommicrodata."JournalofPoliticalEconomy99.4:665-688.

Borgschulte,Mark,andPacoMartorell(2018)."Payingtoavoidrecession:Usingreenlistmenttoestimatethecostofunemployment."AmericanEconomicJournal:AppliedEconomics,10.3:101-127.

Bound,John,MichaelF.Lovenheim,andSarahTurner(2012).“IncreasingtimetobaccalaureatedegreeintheUnitedStates.”EducationFinanceandPolicy,7(4),375-424.

Card,David,andJesseRothstein."Racialsegregationandtheblack–whitetestscoregap."JournalofPublicEconomics91.11-12(2007):2158-2184.

Clark,KimB.,andLawrenceH.Summers(1982).“Labourforceparticipation:timingandpersistence.”TheReviewofEconomicStudies,49(5):825-844.

Daly,MaryC.,BartHobijn,andTheodoreS.Wiles(2012).“Dissectingaggregaterealwagefluctuations:Individualwagegrowthandthecompositioneffect.”FederalReserveBankofSanFranciscoworkingpaper2011-23,May.

Davis,StevenJ.,andTillM.vonWachter(2012)."RecessionsandtheCostofJobLoss.”BrookingsPapersonEconomicActivity2012.

DeLong,J.Bradford,andLawrenceH.Summers(2012)."Fiscalpolicyinadepressedeconomy"BrookingsPapersonEconomicActivity2012:233-297.

Gronau,Reuben(1974)."Wagecomparisons--Aselectivitybias."JournalofPoliticalEconomy82.6:1119-1143.

Jacobson,LouisS.,RobertJ.LaLonde,andDanielG.Sullivan(1993)."Earningslossesofdisplacedworkers."TheAmericanEconomicReview83.4:685-709.

Kahn,LisaB.(2010)"Thelong-termlabormarketconsequencesofgraduatingfromcollegeinabadeconomy."LabourEconomics17.2:303-316.

Oreopoulos,Philip,TillvonWachter,andAndrewHeisz(2012)."Theshort-andlong-termcareereffectsofgraduatinginarecession."AmericanEconomicJournal:AppliedEconomics4.1:1-29.

Oyer,Paul(2006).“Initiallabormarketconditionsandlong-termoutcomesforeconomists.”JournalofEconomicPerspectives20.3:143-160.

Oyer,Paul(2008).“Themakingofaninvestmentbanker:Stockmarketshocks,careerchoices,andlifetimeincome.”TheJournalofFinance.63.6:2601-2628.

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Schmieder,JohannesF.,TillvonWachter,andJoergHeining(2018).“Thecostsofjobdisplacementoverthebusinesscycleanditssources:EvidencefromGermany.”Workingpaper,March2018.

Schulhofer-Wohl,Sam(2018).“Theage-time-cohortproblemandtheidentificationofstructuralparametersinlife-cyclemodels.”QuantitativeEconomics9.2:643-658.

Schwandt,Hannes,andTillvonWachter(2019)."UnluckyCohorts:Estimatingthelong-termeffectsofenteringthelabormarketinarecessioninlargecross-sectionaldatasets.”JournalofLaborEconomics,37(1),S161-S198.

vonWachter,Till,&StefanBender(2006).“Intherightplaceatthewrongtime:Theroleoffirmsandluckinyoungworkers'careers.”AmericanEconomicReview,96(5),1679-1705.

Yagan,Danny(forthcoming).“EmploymenthysteresisfromtheGreatRecession.”JournalofPoliticalEconomy,forthcoming.

25

Figure1.Employmentrates,byageandeducation,1979-2018

Notes:Priorweekemploymentrates,computedfrommonthlyCurrentPopulationSurveydata,

areseasonallyadjustedandsmoothedusinga3-monthtrianglesmoother.(epopoverview.gph)

26

Figure2.Cohorteffectsonemploymentratesofcollegegraduatesaged22-40

Notes:Prior-weekemploymentratesareestimatedfromthemonthlyCurrentPopulation

Surveyandaggregatedtotheeducation-cohort-age-year-statecell.Specificationscorrespond

toequations(1),(2),and(3),respectively,andincludeage,year,andstatefixedeffects,plusan

inverseMillsratiointhecohort-by-yearcollegeattainmentrate.Cohortsareindexedbythe

yeartheyturned22;cohorteffectsarenormalizedtozeroforthe1991and2000entrycohorts.

Regressionsareestimatedonasampleofcollegegraduatesage22-40fromthe1970-2000

entrycohortsobservedin1978to2018.Cohorteffectsforpost-2000entrantsareestimated

assumingthatage,time,andothercoefficientsareasestimatedfromtheearliercohorts.

Fig_atcfx_cohortB_ed1_empl

27

Figure3.Excesssensitivityandscarringcoefficientsfromaugmentedage-time-cohort

decompositionsofcollegegraduateemploymentrates

Notes:SeenotestoFigure2.PanelAshowscoefficientsandconfidenceintervalsforθj

coefficients,reflectingcurrentunemploymentrate-ageinteractions,fromequation(2);panelB

showsφjcoefficients,reflectingentryunemploymentrate-ageinteractions,fromequation(3).

Connectedseriesandconfidenceintervalcorrespondtoestimatesbasedon1970-2000entry

cohorts,whiledotscorrespondtoestimatesusingallentrycohortsthrough2017.

Fig_semitransitory_URt_ed1_empl,Fig_semitransitory_UR0_ed1_empl

28

Figure4.Decompositionofthelong-runeffectoftheGreatRecessionontheemploymentrate

ofcollegegraduates

Notes:Seetextfordetails.EstimatesarebasedonthespecificationplottedinFigures2

(“scarring”series),3B,andAppendixFigures6and7.fittedvals_empl_mD1a

29

Table1.Timeseriesregressionsofestimatedcohorteffectsonthenationalunemploymentrate

intheyearthecohortenteredthelabormarket

Notes:Eachentrycorrespondstoaseparateregressionofestimatedcohorteffectsforcollege

graduatesontheunemploymentrateintheyearthecohortwas22,withaquadraticcalendar

yearcontrolandNewey-Weststandarderrorsallowingforautocorrelationsatlagsuptothree

years.Cohorteffectsincolumns1-3areestimatedusingequations(1),(2),and(3),respectively.

Incolumn4,thespecificationcombines(2)and(3),withcontrolsforbothURst-ageandURsc-age

interactions.PanelsBandCshowestimatesforcohorteffectsonloghourlywagesamongthose

employed,fromtheCPSOutgoingRotationGroups,andonlogannualearningsamongthose

withpositiveannualemployment,fromtheMarchCPS.Thebottomrowsofeachpanelshow

thedifferencebetweenthefittedoractualvalueforthe2010and2006entrycohorts,lessthe

differencebetweenthe2006and2002cohorts.SeeexcelspreadsheetDropBox/tables_01142019tab1(fromcohfxregs.txt)

30

Appendices

AppendixA.Dataprocessinganddefinitions

Theprimaryanalysisconcernsthecohort-age-year-stateemploymentrateforcollege

graduates.ThisisestimatedfromthemonthlyCurrentPopulationSurvey(CPS).Iconstructa

syntheticpanelfromdatafromeachmonthfromJanuary1979throughNovember2018,

aggregatingtoeachcalendaryear.

Idividethepopulationintocollegegraduatesandnon-graduates.Before1992,graduatesare

thosewith16ormoreyearsofcompletedschooling;afterward,itisthosewithBachelorsor

graduatedegrees.Individualrespondentsareassignedtheage(andimpliedbirthcohort)that

theyareonthesurveydate,sosomeonebornonJuly1,1980andsurveyedin2010willbe

treatedasage29in2010andinthe1981birthcohort,ifsurveyedinthefirsthalfofthe

calendaryear,andas30andinthe1980cohortifsurveyedinthesecondhalf.

Myfullsampleforage-time-cohortdecompositions(equations1-3)consistsofpeopleborn

1948-1995(whoturned22between1970and2017)andobservedatages22-40.Asdiscussed

inthetext,myprimaryestimatesidentifytheage,time,andauxiliarycontrolcoefficientsonly

frompre-Recessioncohorts.Forthesespecifications,Iexcludepost-1978birthcohorts,who

turned22after2000.Iusetheresultingcoefficientstoformpredictionsforthesubsequent

cohorts,andestimatetheircohorteffectsasthedifferencebetweenobservedoutcomesand

thepredictions.

WhenIexaminenon-high-schoolgraduates,thesampleextendsfromage18-40,andbegins

withthe1952birthcohort.Thefullsampleextendstothe1999birthcohort,whilethepre-

Recessionsampleagainexcludesthosebornafter1978.

Inspecification(2),Icontrolforthecontemporaneousunemploymentrate.Thisisthestate

averageunemploymentrateforthecalendaryear.Specification(3)controlsforthe

unemploymentratewhenthecohortwas22yearsold(18fornon-college-graduates).Iusethe

statewheretherespondentcurrentlylivesforthis.Stateunemploymentratesarenotavailable

priorto1976;forthe1948-1954(or,fornon-graduates,1952-1958)birthcohorts,Iusethe

nationalunemploymentrate.

AllanalysesareweightedbythesumofCPSsampleweightsinthecell.

Ialsopresentresultsforlogannualearningsandloghourlywages.Forannualearnings,Iuse

the1979-2018AnnualSocialandEconomicSupplement(ASEC),alsoknownastheMarchCPS.

EachASECsurveyincludesinformationaboutearningsduringthepriorcalendaryear.Imeasure

educationandageasofthesurveydate,butusethepriorcalendaryear’sunemploymentrate.

Earningsaretopcodedatthe98thpercentile,separatelybyyear;convertedtoreal2015dollars

usingtheCPI;andlogged.Hourlywagesarecomputedfromthe1979-2017MergedOutgoing

RotationGroup(ORG)filesfromthemonthlyCPS,usinganalgorithmadaptedfromCenterfor

31

EconomicandPolicyResearch(2018;seealsoSchmitt2003).Forthosepaidhourly,Iusethe

higherofthereportedhourlywage(withoutovertime,tips,orcommissions)andtheratioof

weeklyearnings(whichinprincipleincludeovertime,tips,andcommissions)tousualweekly

hours.Fornon-hourlyworkers,Iusethelatter.Whennecessary,usualhoursareimputedusing

actualhourslastweekorthemeanbygenderandparttimestatus.Hourlywagesareagain

convertedtoreal2015dollars,settomissingifbelow$1orabove$200,andlogged.

AppendixB.Additionalspecifications

Ipresentarangeofadditionalspecificationsandmodelsintheappendix.Idiscusstheminturn.

Educationalattainment

IrelyoneducationalattainmentasoftheCPSsurveydate.Somepeopleinterviewedatage22

whodonothavecollegedegreesatthattimewillobtainthemlater.Thismeansthatthe

compositionofmycollegegraduatesamplechangesacrossagewithincohorts.FigureA-3

showsmeanattainmentbycohortandyear.Igroupentrycohortsintotwo-yeargroups.For

example,the“1980”seriesincludesthosewhowere22in1980and1981.Ithenshowthe

averageattainmentofeachcohortgroupineachyearuntilthegroupis29/30.Dotsindicate

theobservationswhenthecohortis23/24andwhenitis29/30.

Forthe1980-1989entrycohorts,educationalattainmentwaslargelystable.Beginningwiththe

1990entrycohort,age-30attainmentrosesharply,byabout5percentagepoints,withnearly

allofthisgrowthoccurringamongdegreesawardedafterage24.Attainmentgrewslowlyfrom

the1990tothe2010entrycohorts,withgrowthmostlyamongdegreesawardedbefore24;

between2002and2010,therewasevengrowthinpre-22awards.Post-2010entrantsarenot

observedthroughage30.Thereissomeindicationthatpost-24degreeawardshaverisenfor

thesecohorts,butwewillnotknowforsureuntiltheireducationiscomplete.

Maindecompositions

FiguresA-4andA-5showestimatedageandtimeeffects,respectively,fromthemain

decomposition(1)foremploymentofcollegegraduates.Theseareestimatedonthepre-Great-

Recessioncohorts,turning22from1970through2000.Forcomparison,FigureA-4shows

estimatedageeffectsfromaspecificationthatincludescalendaryearbutnotcohortcontrols.

Ageeffectsarenormalizedtozeroatage32.ThecomparisonseriesinFigureA-5isthe

unadjustedaverageemploymentrateof22-40-year-oldcollegegraduatesineachyear,without

adjustmentforcohortdifferences.Here,yeareffectsarenormalizedtozeroin2007.Ineach

figure,thecohorteffectsinthefulldecompositionarenormalizedtohavezeroslopebetween

the1991and2000entrycohorts.

FigureA-6showstwosetsofestimatesofcohorteffectsfromequations(1)and(3).Oneset,in

dashedlines,usesthepre-recessioncohortstoidentifyage,time,andscarringcoefficients,

thenextrapolatesthesecoefficientstosubsequentcohorts.Theotherusesthefullsampleto

estimatetheregressions.Resultsaregenerallysimilar.

32

FiguresA-7andA-8repeatthedecompositionsinFigures2and3ofthemaintext,firstforlog

annualearningsandthenforloghourlywages.Sampleshereexcludethosewithzeroworkin

theprioryear(A-7)orpriorweek(A-8).

FiguresA-9throughA-11presentdecompositionsfornon-collegegraduates.Thesearesimilar

tocollegegraduates,exceptthatcohortsenterthesampleatage18,theage-18

unemploymentrateistherelevantentrycondition,thegj(a)coefficientsrefertoyearssinceage

18,andtheselectioncontrolisaninverseMillsratiointheshareofthecohortthatdidnotgraduatefromcollege,! 1 − $%&' .Estimatesofthecyclicalityofthecohorteffectestimates,

withrespecttotheage-18unemploymentrate,areinTableA-1.

Genderdifferences

Maleandfemalelaborforceparticipationpatternsarequitedifferent,anditisplausiblethat

recessionscouldhavedistincteffects(bothpermanentandsemi-transitory)onthem.To

explorethis,Iuseemploymentratesattheage-time-cohort-state-genderlevel,andaugment

mybasicspecificationswithgenderinteractions.Equation(3)becomes:

()%&'* = , + .* + /& + 0%* + 1'* + 2) + 3! $%&'

+ 45 6 ∗ 8922)' ∗ ;5*<5=> + 8922)' − 8922' ?* + @)%&'*.

(3’)

Here,.*representsagender-specificintercept.Theage,cohort,andsemi-transitoryscarring

coefficientsarealsoallowedtovaryfreelywithgender,buttime,state,andselection

coefficientsareheldconstantacrossgenders.

Thenon-identificationproblemissomewhatdifferentherethaninthespecificationusedinthe

maintext.Asbefore,Inormalizecohorteffectstozeroforthe1991and2000maleentry

cohorts.However,Ineedonlyonenormalizationofthefemalecohorteffects:Isetthe1991

entrycohorteffecttozero,butallowtheeffectstovaryfreelybeforeandafterward.This

enablesmetopermitlong-runtrendsinfemalerelativelaborforceparticipation,necessaryto

capturetheentryofwomenintothelabormarketovertime.

FigureA-12showsthe;5*coefficientsfromthisspecification.Semi-transitoryscarringismuch

moresevereformenthanforwomen,forwhomitisonlymarginallysignificant.FigureA-13

showsthecohorteffects,bothforthisspecificationandforasimpleronethatexcludesthe;5*and?*effects.Weseetheexpectedlong-runriseinfemalelaborforceparticipationhere,

thoughtheGreatRecessiondropoff,whichislargerforwomenthanformen,erasesessentially

allofthisprogress.Forbothmenandwomen,unadjustedcohorteffects(fromthesimpler

specificationwithoutsemi-transitoryscarring)areabout4percentagepointslowerforpost-

recessionentrantsthanforthe1991entrantswhoarethereferencegroup.(Alternative

normalizationswouldchangethemagnitudeofthedrop,butwouldnotalterthesimilarityof

themaleandfemaledrops.)Allowingforsemi-transitoryscarringreducesthemaledecline

substantiallyfortheimmediatepost-recessioncohorts,explainingabout2/3ofthefalloff

relativetothe1991-2000trend.Thishasmuchlessofaneffectontherecessiondropofffor

women(thoughitdoeshaveameaningfulimpactonthefemalelong-runtrend).Overall,there

33

doappeartobegenderdifferences,butthebasicstorytoldbythepooledspecifications

presentedinthemaintextisnotoverturnedhere.

SimulationoftheeffectoftheGreatRecession

FigureA-14presentstheassumedtimeandcohorteffectsusedinthesimulationofthelong-

termeffectsoftheGreatRecession,Figure4.Intheserieslabeled“actual,”Iuseestimates

fromspecification(3)through2014.Afterthatyear,Iassumeyeareffectsequaltheaverageof

the2005-7estimates,andcohorteffectsequaltheaveragecohorteffectestimatesfor2005-7

entrants.Inthe“norecessioncounterfactual”series,Iusetheseaveragesforeveryyearand

cohortfrom2008onward.

Sensitivitytomobility

Inequation(3),Iusetheunemploymentratewhentheindividualwas22,inthestateofcurrent

residence,asameasureoflabormarketconditionswhenthatindividualenteredthemarket.

Interstatemobilitybetweenage22andthedateoftheCPSinterviewwillmakethisanoisy

measureofinitialconditions.Further,anyendogeneityofthismobilitytolocalconditionscould

biasmyresults.

Toaddressthis,IuseaninstrumentalvariablesstrategyadaptedfromSchwandtandvon

Wachter(2019).1Constructionoftheinstrumenthasthreesteps.

First,usingpooleddatafromthe1980,1990,and2000decennialcensusandfromthe2001-

2016AmericanCommunitySurvey(one-yearsamples)publicusemicrodatafiles,Iestimatethe

numberofcollegegraduatesbornineachstateblivinginstatesatagea(22£a£40),Nbsa.

Thisisalong-runaverage,pooledacrossnearlyfortyyearsofdata,soisnotinfluencedby

economicconditionsrelevantforanysinglecohort.

Second,Iconstructtheaverageage-22unemploymentratetowhichcollegegraduatesbornin

eachstatebandeachbirthcohortcwouldhavebeenexposed.Lett=c+22.Thisaveragerateis

then:

8922C' =DEFFGHIJG,LLG

IJG,LLG.

Third,foreachstates,cohortc,andagea,Iaveragetheaveragebirth-stateexposureacrossall

birthstates,weightingbytheshareofage-agraduatesinstatesbornineachstateb:

8922)'% =DEFFJMIJGNJ

IJGNJ.

1SchwandtandvonWachter(2019)useadouble-weightingestimatortoabstractfrombothendogenousmobility

andendogenousattainmentrates.Itreatattainmentratesasexogenous,usingtheselectioncorrectiondiscussed

inthetexttoaddresschangesincohortcompositionwithage.

34

Last,Iinteractthismeasurewithageindicators45 6 (j=1,…,5)andusetheresultsas

instrumentsforthe45 6 ∗ 8922)' interactionsinequation(3).AppendixTableA-2showstheestimatedscarringcoefficientsfromthebaseOLSspecificationandusingIV,bothusingthefull

sampleandlimitingtothepre-recessionentrants.Coefficientsaresimilar,andifanything

smallerintheIVspecifications.Inotherwords,accountingforendogenousmobilityattributes

moreofthepost-Great-Recessiondeclineinyoungpeople’soutcomestopermanentcohort

effectsthaninmymainresults.

ReferencesCenterforEconomicandPolicyResearch.2018.CEPRORGVersion2.3,Apr10,

2018,http://ceprdata.org/wp-content/cps/programs/org/cepr_org_master.do.

Schmitt,John(2003).“CreatingaconsistenthourlywageseriesfromtheCurrentPopulation

Survey’sOutgoingRotationGroup,1979-2002.”CenterforEconomicPolicyResearch

technicalpaper,August.

Schwandt,Hannes,andTillvonWachter(2019)."UnluckyCohorts:Estimatingthelong-term

effectsofenteringthelabormarketinarecessioninlargecross-sectionaldatasets.”

JournalofLaborEconomics,37(1),S161-S198.

35

AppendixFigureA-1.Unemploymentrateandprime-agenon-employmentrate

Notes:Unemploymentrateisthepublished,seasonallyadjustedrate.Non-employmentrateis

calculatedover25-54yearoldsfromtheCPSmicrodatasamples,thenseasonallyadjustedand

smoothedusingathree-periodtrianglesmoother.epopoverview_alt

36

AppendixFigureA-2.Meanlogrealhourlywages,byageandeducation,1979-2018

Notes:Hourlywagesarecensoredatrealvaluesof$1and$200perhour(in2015dollars).

Monthlyvaluesareseasonallyadjustedandthensmoothedwitha5-monthtrianglesmoother.

realwageoverview

37

AppendixFigureA-3.Shareofcohortwithabachelor’sdegree,bycohortandyear

Notes:Eachseriesrepresentsrepeatedcrosssectionalaveragesforasinglebirthcohort,

followedfrom22through30acrosssuccessiveCPSsurveys.Forexample,theleftmostseries

includesthosewhowere22in1980,observedinthe1980-1988CPSsurveys.Trianglesand

circlesindicateobservationswhenrespondentswere24and30yearsold,respectively.

fig_eduageyear_college_alt

38

AppendixFigureA-4.Ageeffectsonemploymentofcollegegraduates

Notes:“Employmentrate”seriesrepresentsestimatedcohort-adjustedageeffectson

employmentfromarestrictedversionofequation(1)withnocalendaryeareffects,estimated

oncollegegraduatesaged22-40fromthe1970-2000entrycohortsobserved1979-2018.“Age

effects”seriesisdrawnfromequation(1),estimatedonthesamesampleandincluding

calendaryearadjustments.Ageeffectsarenormalizedtozeroatage32(indicatedbyadot);

thefullage-time-cohortdecompositionfurthernormalizesthecohorteffectstobethesamefor

the1991and2000entrycohorts.Fig_atcfx_age_ed1_empl

39

AppendixFigureA-5.Timeeffectsonemploymentofcollegegraduates

Notes:“Employmentrate”seriesistheunadjustedaverageemploymentrateof22-40-year-old

collegegraduatesineachyear,relativeto2007.“Yeareffects”seriesisdrawnfromequation

(1),estimatedoncollegegraduatesaged22-40fromthe1970-2000entrycohortsobserved

1979-2018andincludingcalendaryearandageadjustments.Yeareffectsarenormalizedto

zeroin2007;thefullage-time-cohortdecompositionfurthernormalizesthecohorteffectsto

bethesameforthe1991and2000entrycohorts.Fig_atcfx_time_ed1_empl

40

AppendixFigureA-6.Cohorteffectsonemployment:Extrapolatedfrompre-recessioncohorts

andestimatedusingthefullsample

Notes:Figurepresentsestimatedcohorteffectsfromequations(1)and(3).Solidlinesshow

effectsestimatedusingthefullsample.Dashedlinesshowseriesobtainedbyestimatingthe

age-time-cohortdecompositionusingonlycohortsaged22by2000,thenestimatingpost-2000

cohorteffectsasmeanresidualsbycohortaftersubtractingtimeandageeffectsestimated

fromtheearlierdata.Ineachcase,cohorteffectsarenormalizedtozeroforthe1991and2000

entrycohorts.Fig_atcfx_cohortC_ed1_empl

41

AppendixFigureA-7.Cohorteffects,excesssensitivity,andscarringforcollegegraduates’log

annualearningsifemployed

A.Cohorteffectsonlogannualearningsofcollegegraduates

B.Excesssensitivityandscarringeffectsonlogannualearnings

Notes:AnnualearningsarecomputedfromMarchCPSdata,forthosewithpositiveearnings,

thenloggedandaveragedtotheeducation-cohort-age-year-statecell.Specifications

correspondtoequations(1),(2),and(3),respectively,andincludeage,year,andstatefixed

effects,plusaninverseMillsratiointhecohort-by-yearcollegeattainmentrate.Cohortsare

indexedbytheyeartheyturned22;cohorteffectsarenormalizedtozeroforthe1991and

2000entrycohorts.Decompositionsareestimatedoncollegegraduatesaged22-40fromthe

1970-2000entrycohortsobserved1979-2018,thenextrapolatedtothepost-2000entry

cohortsholdingallbutcohorteffectsfixed.Fig_atcfx_cohortB_ed1_log_pearnval_tc_r_all

Fig_semitransitory_URt_ed1_log_pearnval_tc_r,Fig_semitransitory_UR0_ed1_log_pearnval_tc_r

42

AppendixFigureA-8.Cohorteffects,excesssensitivity,andscarringforcollegegraduates’log

hourlywagesifemployed

A.Cohorteffectsonloghourlywagesofcollegegraduates

B.Excesssensitivityandscarringeffectsonloghourlywages

Notes:HourlywagesarecomputedfromtheMergedOutgoingRotationGroups,forthosewith

positiveprior-yearearnings,thenloggedandaveragedtotheeducation-cohort-age-year-state

cell.Specificationscorrespondtoequations(1),(2),and(3),respectively,andincludeage,year,

andstatefixedeffects,plusaninverseMillsratiointhecohort-by-yearcollegeattainmentrate.

Cohortsareindexedbytheyeartheyturned22;cohorteffectsarenormalizedtozeroforthe

1991and2000entrycohorts.Decompositionsareestimatedoncollegegraduatesaged22-40

fromthe1970-2000entrycohortsobserved1979-2018,thenextrapolatedtothepost-2000

entrycohortsholdingallbutcohorteffectsfixed.fig_atcfx_cohortB_ed1_rw_l_all

Fig_semitransitory_URt_ed1_rw_l,Fig_semitransitory_UR0_ed1_rw_l

43

AppendixFigureA-9.Cohorteffects,excesssensitivity,andscarringfornon-graduates’

employment

A.Cohorteffectsonemploymentratesofnon-collegegraduates

B.Excesssensitivityandscarringeffectsonemploymentofnon-collegegraduates

Notes:Prior-weekemploymentratesareestimatedfromthemonthlyCurrentPopulation

Surveyandaggregatedtotheeducation-cohort-age-year-statecell.Specificationscorrespond

toequations(1),(2),and(3),respectively,andincludeage,year,andstatefixedeffects,plusan

inverseMillsratiointhecohort-by-yearcollegenon-attainmentrate.Cohortsareindexedby

theyeartheyturned18;cohorteffectsarenormalizedtozeroforthe1991and2000entry

cohorts.Regressionsareestimatedonasampleofnon-collegegraduatesage18-40fromthe

1970-1996entrycohortsobservedin1978to2018.Cohorteffectsforpost-1996entrantsare

estimatedassumingthatage,time,andothercoefficientsareasestimatedfromtheearlier

cohorts.fig_semitransitory_URt_ed0_empl,fig_semitransitory_UR0_ed0_emplFig_atcfx_cohortB_ed0_empl_all

44

AppendixFigureA-10.Cohorteffects,excesssensitivity,andscarringfornon-graduates’log

annualearningsifemployed

A.Cohorteffectsonlogannualearningsofnon-collegegraduates

B.Excesssensitivityandscarringeffectsonlogannualearningsofnon-collegegraduates

Notes:AnnualearningsarecomputedfromMarchCPSdata,forthosewithpositiveearnings,

thenloggedandaveragedtotheeducation-cohort-age-year-statecell.Specifications

correspondtoequations(1),(2),and(3),respectively,andincludeage,year,andstatefixed

effects,plusaninverseMillsratiointhecohort-by-yearcollegenon-attainmentrate.Cohorts

areindexedbytheyeartheyturned18;cohorteffectsarenormalizedtozeroforthe1991and

2000entrycohorts.Regressionsareestimatedonasampleofnon-collegegraduatesage18-40

fromthe1970-1996entrycohortsobservedin1978to2018.Cohorteffectsforpost-1996

entrantsareestimatedassumingthatage,time,andothercoefficientsareasestimatedfrom

theearliercohorts._atcfx_cohortB_ed0_log_pearnval_tc_r_all

45

AppendixFigureA-11.Cohorteffects,excesssensitivity,andscarringfornon-graduates’log

hourlywagesifemployed

A.Cohorteffectsonloghourlywagesofnon-collegegraduates

B.Excesssensitivityandscarringeffectsonloghourlywagesofnon-collegegraduates

Notes:HourlywagesarecomputedfromtheMergedOutgoingRotationGroups,forthosewith

positiveprior-yearearnings,thenloggedandaveragedtotheeducation-cohort-age-year-state

cell.Specificationscorrespondtoequations(1),(2),and(3),respectively,andincludeage,year,

andstatefixedeffects,plusaninverseMillsratiointhecohort-by-yearcollegenon-attainment

rate.Cohortsareindexedbytheyeartheyturned18;cohorteffectsarenormalizedtozerofor

the1991and2000entrycohorts.Regressionsareestimatedonasampleofnon-college

graduatesage18-40fromthe1970-1996entrycohortsobservedin1978to2018.Cohort

effectsforpost-1996entrantsareestimatedassumingthatage,time,andothercoefficientsare

asestimatedfromtheearliercohorts.fig_semitransitory_URt_ed0_rw_l,fig_semitransitory_UR0_ed0_rw_lfig_atcfx_cohortB_ed0_rw_l_all

46

AppendixFigureA-12.Scarringeffectsonemploymentratesofcollegegraduates,bygender

Notes:Seetextfordescriptionofspecification.

47

AppendixFigureA-13.Cohorteffectsonemploymentratesofcollegegraduates,bygender

Notes:Seetextfordescriptionofspecification.

48

AppendixFigureA-14.Assumedtimeandcohorteffectsforsimulationofthelong-termeffects

oftheGreatRecession

A. Yeareffects B.Cohorteffects

Notes:“Actual”seriesisestimatedyear(panelA)andcohort(panelB)effectsfromthe

“scarring”specificationplottedinFigure2(equation3),through2014,andmeasuredin

percentagepoints.Theseriesthenreverttotheir2005-2007averages.The“norecession

counterfactual”seriesequalstheactualseriesthrough2007,thenequalsthe2005-2007

averagethereafter.

49

AppendixTableA-1.Timeseriesregressionsofestimatedcohorteffectsfornon-graduateson

thenationalunemploymentrateintheyearthecohortwas18

Notes:Eachentrycorrespondstoaseparateregressionofestimatedcohorteffectsfornon-

graduatesontheunemploymentrateintheyearthecohortwas18,withaquadraticcalendar

yearcontrolandNewey-Weststandarderrorsallowingforautocorrelationsatlagsuptothree

years.Cohorteffectsincolumns1-3areestimatedusingequations(1),(2),and(3),respectively.

Incolumn4,thespecificationcombines(2)and(3),withcontrolsforbothURst-ageandURsc-

ageinteractions.Lowerrowsshowestimatesforcohorteffectsonloghourlywagesamong

thoseemployed,fromtheCPSOutgoingRotationGroups,andonlogannualearningsamong

thosewithpositiveannualemployment,fromtheMarchCPS.Thebottomrowsofeachpanel

showthedifferencebetweenthefittedoractualvalueforthe2010and2006entrycohorts,

lessthedifferencebetweenthe2006and2002cohorts.

50

AppendixTableA-2.Instrumentingfortheage-22unemploymentrate

Notes:Columns1and3correspondtothescarringestimatesfromFigureA-6.Columns2and4

repeatthesamespecifications,instrumentingfortheage-22unemploymentrate-age

interactionswithasimulatedunemploymentrate(againinteractedwithage)thatabstracts

fromcohort-specificmobility.Seetextfordetails.