Earn more, be happy by coming of age in boom times

Guest Column:
Peter R. Orszag
It’s bad luck to be born 20 years before a time of high unemployment. It affects your income when you enter the workforce, naturally, but that’s not all. It can keep your earnings relatively low – and chip away at your health and happiness, as well – for a lifetime. More

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OP-ED / LETTERS TO THE EDITOR

Earn more, be happy by coming of age in boom times

Guest Column:
Peter R. Orszag
Posted 7/14/14

It’s bad luck to be born 20 years before a time of high unemployment. It affects your income when you enter the workforce, naturally, but that’s not all. It can keep your earnings relatively low – and chip away at your health and happiness, as well – for a lifetime.

Many studies have documented the income effect. A typical estimate, from a 2010 study, is that every percentage point increase in the unemployment rate during the year a person enters the workforce reduces his or her wages by 6 percent to 7 percent on average. And the reduction persists, though it diminishes somewhat over time. Even 15 years on, a person’s wages are 2.5 percent lower for every percentage point increase in the unemployment rate that happened when he or she graduated from college.

For example, compare a person born in 1988, who graduated in 2010, when the unemployment rate averaged 9.6 percent, with someone born in 1984 who graduated from college in 2006, when the unemployment rate averaged 4.6 percent. The person unlucky enough to be born in 1988 had a 30 percent to 35 percent lower wage at graduation. And at their respective 15-year reunions, the 2010 graduate is expected to be earning 12.5 percent less than the 2006 graduate.

Similarly, the class of 1982 (a peak unemployment year) is estimated to have earned about $100,000 less in net present value over their first 20 years of working than did similar students in the class of 1988 (a peak employment year).

People who have graduated into a weak labor market also have turned out to be less satisfied with their lives than people who graduated into stronger labor markets, according to a new analysis of five decades of European survey data. Such people also have been more likely to be obese and to smoke.

Although everyone born in an unlucky year suffers, those who have relatively more education suffer less. For those without any formal schooling, entering a career during a year when unemployment is 5 percentage points higher than normal boosts their chances of smoking 2.5 percent to 5.5 percent. For those with three years of college, by contrast, the chance of smoking goes up by less than 1 percent. In other words, bad times today raise smoking rates tomorrow among all kinds of people, but by much less for those with more education and higher incomes.

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