Life-Cycle Impacts of Graduating in a Recession.

• Author: Schwandt, Hannes

Hannes Schwandt is an empirical economist working at the intersection of health economics, labor economics, and economic demography. His research focuses on the economic causes and consequences of health over the lifecycle.

Schwandt's work has been published in leading economic and interdisciplinary journals, including the Review of Economic Studies, Journal of the American Medical Association, Proceedings of the National Academy of Sciences, and Science and it is regularly featured in leading national and international media.

Schwandt received his PhD at Universitat Pompeu Fabra in 2012, completed postdoctoral studies at Princeton University, and started as an assistant professor at the University of Zurich in 2015. He visited at the Stanford Institute for Economic Policy Research in 2018 and joined Northwestern University in 2019. He is now an associate professor in Northwestern's School of Education and Social Policy and associate director of the Buehler Center for Health Policy and Economics in the Feinberg School of Medicine. He is a research fellow at IZA Institute of Labor Economics, a research affiliate at the Center for Economic and Policy Research, and an NBER faculty research fellow affiliated with the Program on Children and the Health Care Program.

Young adults who enter the labor market during recessions can experience negative impacts to their economic, family, and health outcomes that endure into middle age and beyond. Those who join the workforce in a downturn have lower long-term earnings, higher rates of disability, fewer marriages, less successful spouses, and fewer children. In middle age they also have higher mortality due to lung, liver, and heart disease. The long-lasting effects of labor market shocks to young adults have important implications for assessing the costs of recessions and government interventions.

Young adulthood--the period from age 18 to 25--is a time of profound changes that affect the entire life cycle. During this time, the vast majority of people transition from adolescent dependence to adult independence. They complete their education or training, enter the labor market, and start families. Economic theory and casual observation suggest that their early life-cycle decisions are highly interdependent and vulnerable to economic shocks. An increasing number of studies in medicine and psychology also show that early adulthood is a critical phase for neurological, social, and psychological development.

Large and recurring shocks like recessions can affect a significant share of young adults who are in this critical phase. A staggering 30 percent--46 million--of prime-age workers in the US labor force in 2019 entered the market for the first time during a recession year. Business cycles are known to have strong contemporaneous impacts on young adults and their household decisions, including marriage, fertility, and homeownership. (1)

A growing body of research has shown that entering the labor market in a recession leads to losses in earnings, wages, and employment that persist for about 10 years, and that these losses are larger for less advantaged labor market entrants. (2) Yet, recent analysis suggests that an unlucky start could have longer-term consequences. For example, Anna Aizer and coauthors suggests that the effect of economic interventions may last into middle age. (3) A small number of studies indicate that some impacts on earnings and health can persist until age 40, and that economic conditions in youth and early adulthood may even affect mortality in middle age. (4) Hence, it is important to extend the follow-up period of studying the effect of adverse labor market entry into middle age, and to analyze the effect on noneconomic outcomes.

Studying life-cycle and midlife effects comes with some challenges, however. It requires long follow-up periods and data on a broad range of economic, family, and health outcomes, as well as knowing where and when an individual entered the labor market. To be able to study a range of outcomes over the life cycle with sufficient precision, we develop a new...