Market Shocks and Their Short and Long-Term Effects on Career Profiles

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Using a comparative approach between the labor markets of the U.S. and Europe, Till von Wachter studies the short and long-term effects of market shocks on workers’ careers. In his paper, “The Short and Long-Term Effects of Graduating in a Recession,” he uses the example of Canadian students graduating during a recession to show how the setbacks experienced by entering into a temporarily inhospitable job market can relatively permanent consequences which slowly fade only after about eight to ten years. Students graduating in a healthy market can maintain a significant advantage over the ones initially affected by the recession. His paper uses variations from recessions to learn about the roles in labor markets to determine whether such shocks or frictions affect some workers more than others. His findings show that luck is a big player in determining which players are affected by market shocks, that these shocks have a lasting effect on the career profiles of workers, but also that some workers are more affected by luck than others, the newest entrants to the labor market being more affected than those with at least two years of experience.

“In the Right Place at the Wrong Time” expands this idea of early career shocks having permanent effects by studying the long-term effects of early job loss among young German workers and their employers. In this case, however, von Wachter finds that the initial effects are strong but temporary and that this early job displacement is not necessarily negative but an indicator of a beneficial job search. So while there are large costs of job displacement that are similar to those in the U.S where the rate is very high., in Germany many of the motivations for leaving a job, such as whether the action was voluntary or involuntary, and whether leaving was beneficial to finding another job, has a great impact on assessing the outcome of the effect of that early displacement

His interest in long-term career profiles is continued in his paper “Mortality, Mass Layoffs and Career Outcomes” which assesses the effects of shocks in career development on worker’s health. A worker has a 15 to 20% increase in the probability of dying in the twenty years following a job loss, and stress from economic uncertainty produces unhappiness and decreased mental health. Little study has been done in the field because of a lack of data on the career and health information for a large sample of workers. Elsewhere he assesses that the suspension of mandatory retirement has on the employment outcomes of older workers.

Von Wachter compares the German and French labor markets in his paper “Does a Four-Fold Higher Unemployment Rate Make a Difference?” (with Paola Giuliano) , to explore why, despite a four-fold higher unemployment rate, French workers do not seem to suffer long-term consequences and do not seem to have slower rates of wage growth. The answers, he suggests, lie in institutional differences where there is a greater initial job search among the French than their German counterparts who tend to follow an apprenticeship system which allows for less mobility. The results of von Wachter’s research have particular importance for constructing career profiles and assessing the importance of alternative career models.

4 Papers covered by this article (via Columbia)

“The Short and Long-Term Effects of Graduating in a Recession: Hysteresis and Heterogeneity in the Market for College Graduates” (joint with Phil Oreopoulos and Andrew Heisz).

“In the Right Place at the Wrong Time” (joint with Stefan Bender), American Economic Review, 2006.

“Mortality, Mass Layoffs and Career Outcomes” (joint with Daniel Sullivan).

“Does a Four-Fold Higher Unemployment Rate Make a Difference? Wage Growth and Job Mobility of Young Workers in France, Germany, and the United States” (joint with Paola Giuliano).

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14. February 2010 by Miguel Barbosa
Categories: Curated Readings, Finance & Investing | Leave a comment

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