Graduating in a Recession
A couple of months ago, blissfully unaware of how the world would change so drastically, I was having a blast at a birthday party of a friend. In a casual conversation at the party, I recollect talking optimistically of all the opportunities that lie ahead of us upon graduation. The guy who I was talking to, said that companies in the financial sector are hiring people left and right. Fast-forward to the present, the International Monetary Fund (IMF) stated that the world economy will see the worst recession since the 1930s. The IMF has forecasted a 7.5% decrease in GDP for The Netherlands this year. Since a lot of businesses have been forced to close, it is expected to see a large decline like this. Unfortunately, this prognosis is a mild scenario and given the novelty of this economic shock, it is hard to predict how it will scar the economy in upcoming years. What is true is that the recession real and may affect the job market of graduates. Are the concerns about the graduate job market justified?
In a recession college graduates earn less for at least 10 to 15 years than those who graduate in economic booms.
The first 10 years of our career are crucial and account for about 70% of overall wage growth. In this period young professionals change jobs, climb the career ladder and find out which particular line of business or industry is best suited for them. With a recession, these opportunities are limited, and college graduates earn less for at least 10 to 15 years than those who graduate in economic booms. In research from Stanford University, it was further pointed out that recession graduates have higher mortality and lower overall socioeconomic outcomes which persist in the long-run. Concerns are thus justified nonetheless should not scare graduates. The research I refer to considers the overall market and distinguishes based on educational level, with college graduates seeing the least detrimental effects. Furthermore, the process of acquiring a job is a complex mechanism that considers a wide range of (individual) factors that may be independent of the overall job market.
The effectiveness of economic policy to combat adverse effects, the course of the pandemic itself and behavioral changes of people all contribute to economic uncertainty.
Given the uniqueness of the 2020 recession, it is difficult to predict whether this shock will persist in the upcoming years. The IMF warned for extreme uncertainty and the effect of economic scarring. If scarring happens, businesses have been hit so hard that they go bankrupt; negatively affecting the economy for years. This shouldn't happen but can't be ruled out. The effectiveness of economic policy to combat adverse effects, the course of the pandemic itself and behavioral changes of people all contribute to economic uncertainty. In 2008 the financial crises caused a domino effect, affecting the whole economy for many years. Luckily, the current crisis is not a financial crisis. Since the financial crisis of 2008, bank buffers have more than doubled across Europe, hence the financial sector has become much more resilient to unexpected shocks like the coronavirus.
The fiscal and monetary measures of governments have calmed financial markets and led them to recover.
With the country in a recession, this year financial markets are already looking beyond this. Many stock markets have been recovering from the initial corona panic. Apparently, the initial reaction to the coronavirus was an overreaction. The fiscal and monetary measures of governments have calmed financial markets and led them to recover. Optimism for a vaccine and a cure further contributed to the recovery. From the behavior of the financial market, we can infer that the recession may be just a short one. Economies will recover and thus the detrimental effects of graduating in a recession can be minimal.
In this article, we have explored the implications of graduating in a recession. Overall the effects are unfortunately negative and persist in the long-run. With the current recession being a very unique one and induced by governmental measures to combat the coronavirus, a quick recovery is possible. If this is the case and economic scarring is minimal, the graduating in this particular recession will not do too much harm to one's opportunities and future outcomes. Financial markets are recovering and optimistically looking beyond the current crisis, which should calm most concerns of graduates.