May 19, 2024


Savvy business masters

Commentary: COVID-19 could shrink earnings of 2020 graduates for years to come

KNOXVILLE, Tennessee: Before the coronavirus pandemic forced businesses and schools to close, US high school and college students graduating in 2020 could have expected to enter the strongest job market in 50 years.

Now, due to massive economic fallout, the Class of 2020 is at risk of graduating into a recession.

This souring economy has important implications for more than 3.5 million students expected to graduate from high school in 2020, and the more than 1.3 million students expected to graduate from a two-year or four-year college.

The social distancing that has upended business as usual is causing a wave of layoffs and furloughs, with an unprecedented 3.3 million new unemployment claims filed in the week ending on Mar 21.

And that’s just the beginning. Experts predict the US unemployment rate will eventually rise from 3.5 per cent in February to as much as 30 per cent by June.

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Should a recession occur, we believe young workers and new grads may be hit hard. History and research also show the looming economic downturn could have distinct consequences for the Class of 2020 that outlast the economic downturn itself.


Younger workers typically have more trouble finding and maintaining employment in a recession. For example, during the Global Financial Crisis from 2008 to 2009, the unemployment rate for all workers peaked at 10 per cent – about half of the 19.2 per cent peak for workers between 16 and 24 years old.

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A staff member of Japanese drinking bar, wearing a protective face mask following the outbreak of t

A staff member of Japanese drinking bar, wearing a protective face mask following the outbreak of the coronavirus disease (COVID-19), waits for customers at almost empty of bars alley at Shinjuku district in Tokyo, Japan March 31, 2020. REUTERS/Issei Kato

During a recession, people attempting to enter or re-enter the labour market will have a harder time finding employment and therefore have less access to employer-provided health insurance, potentially leaving both their physical and financial well-being at greater risk. About 14 per cent of Americans between the age of 19 and 24 are uninsured, much higher than the 8.5 per cent nationwide rate.

Second, younger Americans disproportionately work in the food, retail, leisure and hospitality industries. Those workplaces are all being hit hard as consumers follow government orders to stay home.

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Finally, new graduates are not in the best position to benefit from the US$2 trillion federal coronavirus relief package that, among other things, is designed to help employers keep or rehire workers. This relief will do more for people who were already working than new graduates seeking to enter the job market or find a better paying job.

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The Class of 2020 could feel the effects of a recession well after the recession has ended.

Prior research has found that US college students who graduated during a recession earned 10 per cent less the first year after they completed their studies than would otherwise be expected. And the negative effects lasted over the next seven years.

Why? Researchers attribute these losses to college graduates taking jobs that pay less right after they graduated.

Students wearing protective masks leave after taking their exams in New Delhi

FILE PHOTO: Students wearing protective masks leave after taking their exams in New Delhi, India, March 6, 2020. REUTERS/Anushree Fadnavis

Research on Canadian students suggests the effects may be long-lasting – those who graduated in recession years had initial income 9 per cent below students who graduated in better economic conditions, with the gap closing to zero over the next 10 years.

In the past, the negative effects of graduating in a recession did not affect everyone the same. Highly skilled graduates, those graduating from more selective colleges and universities or who majored in fields that usually lead to high salaries, tend to recover early hits to their earnings by changing jobs and employers once the economy rebounds.

All else equal, it pays more to major in engineering than theatre. And these differences are magnified after recessions.

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As the world tides out the COVID-19 pandemic, here are what members of the Class of 2020 can do.

First, young people should take care of their health. While the individual risks of COVID-19 may seem low for them, young people can nevertheless get quite sick, and they can transmit the virus throughout their communities – including to their more vulnerable friends, neighbors and relatives.

It is worth stating the obvious that becoming ill with COVID-19 would make it much harder to work or to find work, and that becoming infectious could worsen the health and financial security of others.

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Delivery worker rides a vehicle past a vendor waiting for customers in Jingzhou

A delivery worker rides a vehicle past a vendor waiting for customers in Jingzhou, after the lockdown was eased in Hubei province, the epicentre of China’s coronavirus disease (COVID-19) outbreak, March 27, 2020. REUTERS/Aly Song

Second, young workers and jobseekers should pay attention to government relief efforts. Grads can actively seek out benefits for which they or their employers may be eligible.

Finally, students could consider staying in school. Some graduates may be better off continuing their studies and pursuing another degree. 

They may have plenty of company: Enrolment typically rises during recessions. Staying in school will make graduating during a recession less likely and could help graduates land a higher-paying job later on.

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Continuing students should be cognisant of additional student debt, but also the potential boost in earnings from further education. Another consideration is that the implicit cost of being in school – the income given up because an individual is in school instead of working – is now lower than normal.

We close on a note of optimism. Despite dire short-run predictions for the labour market, economic improvement is expected throughout the second half of 2020 and into 2021.

Although we have yet to see the full extent of layoffs and overall economic slowdown induced by COVID-19, analysts currently expect that countries will get back to work once the virus is under control.

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Celeste K Carruthers, Larry Kessler and Marianne Wanamaker are associate professors of economics at the University of Tennessee. This commentary first appeared on The Conversation.

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