The impacts of COVID-19 have left global economies reeling. The domestic economy, faltering even before the pandemic, now faces the virtual certainty of a protracted recession. The past four weeks have seen 426,000 claims for the JobSeeker payment, with official unemployment forecast to rise from 5.2% in March to around 10% in June. The recessions of the 1980s and 1990s saw unemployment take 7 and 11 years respectively to return to pre-recession levels, however, the fact a number of closures were driven by health rather than economic factors gives hope this recovery may be faster.

Students have experienced cancellations and alterations to sought after internship programs during the winter break, with recruitment for summer positions currently proceeding amidst uncertainty about the structure of the programs themselves. However, the greatest degree of uncertainty surely lies in the minds of the graduating cohorts of the next two years.

Graduating in a recession is not easy. The findings of multiple empirical studies show graduate employment rates and salaries suffer in the aftermath of recessionary periods, with the recovery period found to extend over a decade in some studies. There is also a harmful effect on employment rates in economics PhD roles, with impacts of this felt throughout an economist’s career. However, it has been found that recession-era graduates enjoy higher job satisfaction and may be less likely to engage in unethical practices than their boom time counterparts. 

Impact on Wages

Substantial research indicates a university graduate entering the workforce in a recession faces earnings losses which are persistent but not permanent. Oreopoulos, von Wachter, and Heisz (2008) found a two standard deviation increase in the unemployment rate (an effective proxy of the difference between boom and bust periods) leads to an initial wage gap (difference between ‘normal’ graduate earnings and graduate earnings in a recession) of 10%. This gap experiences a slow decline, and is reduced to zero by the eighth year (on average) after commencing employment. However, Khan (2010) suggests the impact on income is much greater, with graduates expected to see a 6-7% decline in starting salary for every 1% increase in the unemployment rate. In her research, Khan found the return to non-recessionary incomes slower than the findings of Oreopoulos et al, with a 0.25% decrease in the gap between recessionary and ‘normal’ starting incomes each year, with a wage gap of 2.5% remaining 15 years after entering the workforce. Oreopoulos et al conclude nearly all of the wage gap can be attributed directly to unemployment rate variation in the first year after graduation, with results robust to both selective graduation and selective labour force participation.

The magnitude and persistence of income losses are felt more heavily by graduates at the bottom of the wage and ability distribution, while the effects at the top are smaller and short lived. Oreopoulos et al (2008) determined the losses in present value of earnings to be 3 to 4 times greater for the least advantaged workers, indicating a high degree of heterogeneity in the impacts on individuals. The magnitude of the impacts was also observed to be greater for graduates with limited work history. It was also found recessions led graduates to begin their careers at less attractive employers, and an important factor in earnings catch up is the mobility of workers to higher paying firms in the initial years after the shock. A decomposition of earnings losses found lasting reductions in the quality of graduate employers explain 40-50% of persistent earnings losses. Oreopoulos et al propose lower rates of job searches and changes amongst the least advantaged see them permanently down-ranked to lower wage firms.

 Impact on Job Satisfaction

Graduates who enter the workforce in a recession appear happier with their jobs than those who graduate in better circumstances. There are several reasons graduating in worse times may lead to more favourable subjective evaluations, despite objectively worse results. Graduates who enter the workforce during non-recessionary periods may be more likely to contemplate upward counterfactuals, or consider ways they might have done better, a process that lessens satisfaction. These graduates typically have more real or perceived opportunities and seemingly greater control over their paths, conditions favourable to counterfactual generation (Bianchi, 2013).

On the other hand, recession-era graduates are more likely to feel grateful for their jobs, which bolsters satisfaction. Due to the restricted number of job opportunities for these graduates, a secured job is perceived as more valuable, intentionally conferred, and costly to the benefactor, all conditions that promote gratitude. The proven stability of job attitudes across time mean these ways of experiencing and evaluating a job are likely to persist throughout graduates’ careers (Bianchi, 2013) (Steele and Rensch, 1997).

Even when people do objectively better, they will often feel subjectively worse if it is easy to imagine how things might have turned out better. Medvec, Madey, and Gilovich (1995) found Olympic silver medallists were less satisfied with their outcomes than bronze medallists despite clearly attaining better results. Silver medallists felt worse because they agonized over whether a longer stride or faster stroke might have earned them a gold medal. This fixation on how they might have done better diminished their satisfaction with their achievement.

For graduates entering the workforce when the economy is flourishing, there are more actual or imagined paths to consider and thus more opportunities for second-guessing and rumination. Conversely, recession-era graduates typically entertain fewer real or imagined job opportunities. Even those who secure jobs recognize their good fortune and are less likely to believe that better opportunities remain unexplored. These graduates are less likely to dwell on better possible outcomes and more often focus on positive features of the jobs they hold (Bianchi, 2013). In a study of over 1600 people, Bianchi (2013) finds the unemployment rate at the time of entering the workforce positively correlate with measures of job satisfaction, even though many respondents were many years into their career.

There are several reasons why worse economic conditions may engender greater levels of gratitude amongst graduates. First, people often experience gratitude when they have received something of value (Tesser, Gatewood, and Driver, 1968). During recessions, there are fewer job openings and a larger, more talented pool of applicants, so finding a job is significantly harder. It is likely that a job earned in this climate would be perceived as substantially more valuable than one earned when employers are more freely hiring graduate employees.

Gratitude is also generated by the perception that the job is costly to the benefactor and intentionally conferred. As economic conditions deteriorate, hiring assumes greater real and perceived costs. The relative costs of hiring are increased by adverse macroeconomic conditions which reduce profits, restrict organizational spending, limit access to credit, and promote risk aversion. Finally, perceptions of the benefactor’s intentionality are different in recessionary environments. Given the greater number of applicants for each job during a recession and the higher costs associated with bringing in new workers, a selected employee is more likely to feel that he or she was deliberately chosen. Members of the class of 2009 who secured jobs frequently described themselves as ‘‘thankful,’’ ‘‘fortunate,’’ and ‘‘lucky,’’ despite the difficulty of their initial labour market experiences (Bianchi, 2013).

Entering the workforce in a recession also appears to affect how people think about themselves. One metric of a person’s self-focus is narcissism: the belief that one is entitled to good outcomes. Narcissists focus on their own interests despite the harm to others, and have been found to be more likely to steal from their employers or shareholders.

It is suggested by Bianchi (2018) that recession-era graduates are less likely to develop a grandiose sense of self. Narcissism is tempered by setbacks, and people who begin their careers during recessions often have a more difficult time finding work and establishing careers. An American study found many graduates are forced to move home, work in jobs that do not require university education, or work multiple part-time jobs. These challenges undoubtedly make it more difficult to establish a career, however they do impede the development of narcissistic tendencies.

Bianchi (2018) conducted tests to determine whether graduating in a recession did temper narcissism, using data from 30,000 American participants. It was found that people who entered the workforce in worse economic times were less narcissistic than those who entered in more prosperous ones. Similar effects were observed throughout different levels and sectors of the workforce, including at the CEO level.

Evidence suggests graduating in a recession can also affect people’s willingness to behave unethically in business. Research shows narcissists are more likely to behave unethically, impede or sabotage co-workers, and be convicted of white collar crime. Additional research by Bianchi and Mohliver (n.d.) found CEOs who began their careers in worse economic times were less likely to backdate stock options (an unethical, yet common practice in the 1990s and early 2000s). Not only are recession graduates less likely to regard themselves as overly important and deserving of outsized praise, but they are also less likely to engage in behaviour that enriches themselves at the expense of their employer or colleagues.

 Specific Impact on Jobs in Economics

For academics, Oyer (2006) concluded each place higher in the rank of an initial institution causes an economist to work at an institution 0.6 ranks higher between three and fifteen years later. An economist initially employed by a top-fifty institution is also 60% more likely to work at a top-fifty school in the later stages of their career. Oyer also presented evidence that obtaining initial placements at a higher-ranked university leads to greater professional productivity, due to the advantages of having lighter teaching loads, higher visibility in the profession, and more experienced colleagues.

Oyer (2006) also made a number of conclusions regarding the likelihood of economists receiving graduate roles at top-fifty institutions. In a longitudinal study of over 2300 PhD graduates, it was found that the ‘average’ economist was hired by a higher-ranked institution when the demand for economists was relatively high. The data also suggested economists were more likely to begin their careers on tenure-track or at top-fifty institutions when conditions were more favourable. Oyer identified an implication of the study is that graduating economists who are not at the very top or very bottom of their cohort may gain long-term benefits by timing their market entry to coincide with a strong job market, but suggests if the strategy became too common, the benefits of using it would likely diminish.

Another key finding was that economists who, because of bad luck, end up at lower-ranked institutions may find it harder to move to more-research focused schools. Oyer presents a number of arguments for why this may be the case. In part, this may occur when graduates develop skills, especially teaching skills, which give them a comparative advantage with their initial employer, even if more-initially-desired opportunities arise. That is, a graduate economist may invest in what Gibbons and Waldman (2006) call “task-specific human capital” and, conditional on initial placement, may obtain higher utility by staying in their initial type of employment. The Gibbons and Waldman model also suggests those hired under more favourable conditions are initially given higher-value tasks, and therefore develop greater human capital that persists through their careers. Gibbons and Waldman suggest the research productivity of economists is increased by receiving a good first job, due to institutional orientation towards research and spillover effects from colleagues at top institutions.

Oyer also presents the argument that people’s tastes evolve based on their experience and environment; that is, economists who begin work in top institutions may adopt the local norm of what is treated as success, with a greater emphasis on research. Conversely, economists who begin in lower-ranked institutions place a greater focus on less research-oriented activities, including teaching and community service. Hence, the economist who initially places at a top university is more likely to have greater research productivity and remain at a top institution (Frank, 1984).

Another argument, with similar observed empirical implications, is that the job market perceives initial placement as a perfect signal of ability and fails to compensate for the luck associated with market conditions upon graduation. This can only hold if there is systemic irrational behaviour in the market for economist positions. Einav and Yariv (2006) find evidence of such behaviour when they show that economists do not properly compensate when evaluating one another for the advantages conferred by alphabetical ordering to those with surnames early in the alphabet. Therefore, it is plausible that economists might also fail to account fully for the effect of economic conditions on graduate jobs.


The unfortunate realities of a recession will see graduate employment rates and salaries fall. In the economics profession, the impact on tenure-track and top-ranked institution applicants will be profound. Irrespective of starting position, graduates in recessionary environments will experience higher levels of job satisfaction throughout their careers, and will also be less likely to behave unethically. The Oreopoulos et al (2008) paper provides the clearest insights for graduates looking to work their way up the career ladder from an unfavourable starting position: keep looking, keep moving up, and don’t let yourself get stuck where you don’t want to be.

References and Acknowledgements

Cover Image: TND

Bianchi, Emily C. 2013. “The Bright Side of Bad Times: The Affective Advantages of Entering the Workforce in a Recession.” Administrative Science Quarterly. 58:4, pp. 587-623

Bianchi, Emily C. 2018. “People Who Graduate During Recessions Earn Less Money — but They’re Happier.” Retrieved 01/05/2020 from

Einav, L., Leeat, Y. 2006. “What’s in a Surname? The Effects of Surname Initials on Academic Success.” Journal of Economic Perspectives. 20:1, pp. 175-87

Gibbons, Robert and Waldman, Michael. 2006. “Enriching a Theory of Wage and Promotion Dynamics Inside Firms.” Journal of Labor Economics. 24:1, pp. 59-107

Frank, Robert H. 1984. “Are Workers Paid Their Marginal Products?” American Economic Review. 74:4, pp. 549-71

Khan, Lisa B. 2010. “The long-term labor market consequences of graduating from college in a bad economy.” Labour Economics. 17 pp. 303-316

Medvec, V., Madey, S., Gilovich, T. 1995. “When Less Is More: Counterfactual Thinking and Satisfaction Among Olympic Medalists.” Journal of Personality and Social Psychology. 69:4, pp. 603-610

Oreopoulos, P., von Wachter, A., Heisz, T. 2008. “The Short- and Long-Term Career Effects of Graduating in a Recession: Hysteresis and Heterogeneity in the Market for College Graduates.” IZA DP No. 3578

Oyer, Paul. 2006. “Initial Labor Market Conditions and Long-Term Outcomes for Economists.” Journal of Economic Perspectives. 20:3, pp. 143-60

Steele, R., Rentsch, J. 1997. ‘‘The dispositional model of job attitudes revisited: Findings of a 10-year study.’’ Journal of Applied Psychology 82, pp. 873–879

Tesser, A., Gatewood, R., and Driver, M. 1968. ‘‘Some determinants of gratitude.’’ Journal of Personality and Social Psychology. 9, pp. 233–236

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