Economic recessions create an array of immediate and widespread challenges for workers, exerting labor market pressures that lead to layoffs and make it difficult to find a job and earn enough to make ends meet. These conditions can also lead to long-term consequences for those whose first entry into the workforce coincides with a recession or economic downturn. With increasing access to high-quality administrative data spanning decades, there is a growing body of research documenting the scale of these consequences (referred to as “economic scarring”) on one’s long-term life trajectory.
Cesia Sanchez, who received her PhD from UC Berkeley’s Economics Department in May 2024, is making important new contributions to this literature. In part, her interest stems from a desire to understand the experiences that shaped her upbringing, including the impact the subprime mortgage crisis had on her family. During her undergraduate studies at Texas A&M, Sanchez realized, “I need to keep up with econ because it's going to help me understand my life experiences. In my principles of macroeconomics course, I learned what being seasonally employed meant. We studied the bursting of the real estate bubble. That class taught me that all of my life experiences could inform research questions that I’ve studied.”
Sanchez’s dissertation, The Effect of Early Economic Conditions on Young Adults’ Transition Into Adulthood and their Occupational Characteristics, offers new ways of looking at the long-term impacts of exposure to economic downturns early in life. Specifically, while previous work in this field has largely examined how labor market trends affect college graduates, Sanchez focuses additionally on high school graduates. Her analysis also considers a wider array of variables (in addition to standard outcomes related to earnings and employment) in order to understand how recessions impact the transition into adulthood more broadly, and what consequences economic downturns have for the quality of employment one can access down the road.
In the first part of her paper, Sanchez uses data from the American Community Survey, covering 19 to 30 year olds between 2006 and 2021, to estimate the effect of economic conditions on a variety of variables indicative of transition to adulthood – including employment rates, earnings, living arrangements, marriage, and educational attainment. As a measure of exposure to recessionary conditions, she takes the unemployment rate at age 18 for each member of her sample, rather than focusing on a labor market entry point of age 22, or post-college graduation. By beginning her analysis at the point of high school graduation, rather than college graduation, Sanchez can estimate how recessions influence the way young people make decisions – about pursuing careers, post-secondary education, and alternatives like trade school – and how these choices impact future job quality.
Corroborating findings from past research, Sanchez finds that those who experience high unemployment rates at age 18 are less likely to be employed up to age 23, and are more likely to have very low earnings throughout their twenties, relative to their counterparts who come of age during a period of low unemployment. In a new contribution to the evidence on scarring effects, Sanchez’s paper also documents that these same individuals are much more likely to live with their parents throughout their twenties. Consequences for marriage and college attendance, however, are a bit more mixed. High unemployment rates at age 18 have a polarizing effect on the decision to marry: those who would’ve otherwise married early do so even earlier, whereas those who would’ve married later delay. Similarly, high unemployment rates accelerate college enrollment, but do not spur enrollment from students who would not have attended college in more favorable economic conditions.
Source: Autor, David H., and David Dorn. 2013. "The Growth of Low-Skill Service Jobs and the Polarization of the US Labor Market." American Economic Review, 103 (5): 1553–97.
If young people’s employment and earnings are negatively affected by recessions, what consequences might economic conditions have for the quality of jobs they access? The second part of Sanchez’s dissertation examines this question, with a focus on what kinds of skills are required of jobseekers. While past research on scarring effects has investigated outcomes for job quality, Sanchez takes a somewhat different approach in her measurements of job quality. “[In past literature] working in a higher quality job was typically defined as working in a job within the top five highest-paying categories of your college major – again, thinking about those people who graduated college,” she said. Rather than follow this definition, Sanchez draws from research on the “job polarization phenomenon,” which describes why economic downturns tend to result in job losses in middle-skilled occupations. Sanchez employs “task intensity measures” from this literature, designating occupations as primarily routine, manual, or abstract.
Sanchez expected to find that graduating from high school in a time of high unemployment would lead to (a) an increased likelihood of working in a primarily manual or abstract occupation, and (b) a decreased likelihood of working in routine occupations. This hypothesis aligns with the job polarization phenomenon, which suggests that recessionary conditions put the most pressure on availability of middle-skilled, or “routine” occupations, as companies can most easily automate these job functions. Sanchez’s analysis confirmed these hypotheses for routine jobs (decreased likelihood) and abstract jobs (increased likelihood), but it also suggested that graduating under recessionary conditions reduced employment in manual jobs as well – a surprising finding to her, given that high school graduates are relatively low-skilled. “That's a puzzle that I'd like to understand – why do those effects not match the job polarization phenomenon?”
In August 2024, Sanchez joined Baylor University’s Department of Economics as a Clinical Assistant Professor, where she’ll continue her research on the long-term consequences of economic and labor market conditions on young people’s lives. In particular, Sanchez hopes to more thoroughly investigate why recessions seem to lead to higher-quality jobs for high school graduates. She takes her findings as suggestive evidence of an acceleration effect that recessions might produce for high school graduates: facing the labor market consequences of a recession, new graduates rapidly pursue education - in particular, trade certificates - that quickly result in employment in abstract-oriented, high-quality jobs. By comparison, jobseekers who graduate from college in a recession may not have anticipated struggling to find a job, and may have therefore chosen career paths that are less well-suited to recessionary conditions. “Experiencing a recession at the age of 21, you hadn't been in the job search at the age of 18 to really think through, ‘What is the economy going to demand by the time that I graduate?’ And I think that's what's happening. It’s something that I want to study more to fully complete this paper.”