Browsing by Author "Päällysaho, Miika"

Extensive evidence in economics shows that facing a recession upon entry to the labor market can have sizable and persistent effects on the earnings and careers of labor market entrants. Long-term negative effects have been found among young and low- educated workers, but also among highly educated labor market participants such as university graduates. Theory and empirical evidence suggest that the negative effects arise because of a prolonged period of job search and fewer opportunities early on in the career for finding employment that fits the worker’s skills, for example. Identifying those most susceptible to persistent effects and understanding the mechanisms and channels underlying them are important for improving the effectiveness of active labor market policies and other public policy instruments as well as the school-to-work transition. This thesis studies the short-term and long-term effects of facing adverse economic conditions upon graduation on real annual earnings, unemployment and other labor market outcomes among Finnish university graduates who obtained a Master’s degree between 1988 and 2004. The empirical strategy uses idiosyncratic variation in regional unemployment rates as a proxy for regional business cycle fluctuation, controlling for common national business cycle fluctuation and regional fixed effects. The thesis contributes to the existing literature in three ways. First, it provides the first evidence on the effects of graduating from university upon adverse economic conditions in Finland. The results with Finnish data are compared to other countries with different labor market institutions. Second, the time period investigated in this thesis (1988-2014) includes a period unlike any other studied in the existing literature: the exceptionally deep 1990s Finnish depression. Third, it contributes to the relatively scarce evidence on gender differences in the effects of graduating into a recession. The data used in this thesis contain matched employer-employee panel data on the first ten post-graduation years of around 140,000 graduates. The results show that facing a six percentage points (roughly a standard deviation) above average regional unemployment rate in the region of residence in the year of graduation on average reduces annual earnings by 12.6% in the following year after graduation. Remarkably, this initial effect is only halved after 9–10 years. These effects on earnings are larger than what have generally been found in the literature and are similar to those reported with U.S. and Canadian data, for example. Furthermore, there is a persistently higher probability of being unemployed that lasts for roughly seven years. Smaller and more short-lived effects are found when only considering cohorts who graduated after the 1990s depression: the effects on earnings last only for the first five years and there are no effects on unemployment. These findings suggest that under more normal business cycle fluctuation, mechanisms other than unemployment are responsible for the earnings losses. Given the relatively high levels of wage rigidity in Finland, the existing literature suggests that the earnings losses can result from task downgrading and skill mismatch, for example. Finally, the results show that the effects on earnings are smaller for female graduates, perhaps reflecting gender differences in fields of study, employing sector and labor market attachment. Robustness checks indicate that the empirical results are not likely to be affected by selective timing or place of graduation.