Margarita Pavlova (CERGE-EI)
This paper examines the long-term impact of economic conditions at and after college graduation on labor market outcomes, emphasizing economic trajectories over point-in-time measures. First, I modify traditional models by including a labor market trend indicator that captures whether the unemployment rate was decreasing at graduation. I find that entering during a downward trend leads to substantially stronger earnings gains than the losses experienced when graduating during an upward trend, indicating an asymmetric effect of labor market trajectories. To capture the overall severity of conditions at and after graduation, I construct an accumulated unemployment rate defined as the sum of the unemployment rate at graduation and over the following two years. Graduates facing similar unemployment rates at graduation but worse post-graduation conditions earn, on average, 1.2% less, suggesting that post-graduation dynamics play a larger role in shaping outcomes over 3-10 years of potential experience. Finally, I address selection into college by dividing cohorts based on labor market conditions at enrollment. The graduation penalty is more severe (11.5% compared to 7.7% of initial earnings) and more persistent for those who entered college during recessions. A similar pattern holds for post-graduation conditions, underscoring the importance of accounting for enrollment-time labor market exposure when estimating long-term effects.