TY - JOUR AU - Oreopoulos,Philip AU - Wachter,Till von AU - Heisz,Andrew TI - The Short- and Long-Term Career Effects of Graduating in a Recession: Hysteresis and Heterogeneity in the Market for College Graduates JF - National Bureau of Economic Research Working Paper Series VL - No. 12159 PY - 2006 Y2 - April 2006 UR - http://www.nber.org/papers/w12159 L1 - http://www.nber.org/papers/w12159.pdf N1 - Author contact info: Philip Oreopoulos Department of Economics University of Toronto 150 St. George Street Toronto, ON M5S 3G7 Canada E-Mail: philip.oreopoulos@utoronto.ca Till M. von Wachter Department of Economics Columbia University 601 West 115th Str. Apt. 101 New York, NY 10025 Tel: 212/854-5712 Fax: 212/854-8059 E-Mail: vw2112@columbia.edu Andrew Heisz AB - The standard neo-classical model of wage setting predicts short-term effects of temporary labor market shocks on careers and low costs of recessions for both more and less advantaged workers. In contrast, a vast range of alternative career models based on frictions in the labor market suggests that labor market shocks can have persistent effects on the entire earnings profile. This paper analyzes the long-term effects of graduating in a recession on earnings, job mobility, and employer characteristics for a large sample of Canadian college graduates with different predicted earnings using matched university-employer-employee data from 1982 to 1999, and uses its results to assess the importance of alternative career models. We find that young graduates entering the labor market in a recession suffer significant initial earnings losses that eventually fade, but after 8 to 10 years. We also document substantial heterogeneity in the costs of recessions and important effects on job mobility and employer characteristics, but small effects on time worked. These adjustment patterns are neither consistent with a neo-classical spot market nor a complete scarring effect, but could be explained by a combination of time intensive search for better employers and long-term wage contracting. All results are robust to an extensive sensitivity analysis including controls for correlated business cycle shocks after labor market entry, endogenous timing of graduation, permanent cohort differences, and selective labor force participation. ER -