February 2020

IZA DP No. 13009: The Long-Term Effects of Labor Market Entry in a Recession: Evidence from the Asian Financial Crisis

Eleanor J. Choi, Jaewoo Choi, Hyelim Son

This study investigates the long-term effects of initial labor market conditions by comparing cohorts who graduated from college before, during, and after the 1997–1998 Asian financial crisis in South Korea. We measure the overall welfare effect by examining their labor market activities, family formation, and household finances. Using data from 20 waves of the Korean Labor and Income Panel Study, we find a substantial and persistent reduction in employment, earnings, marriage, fertility, and asset building among men who graduated during a recession. For women, limited job opportunities at graduation result in an increase in childbearing. Our results suggest that labor market entry in a large-scale recession has prolonged effects on a young worker's life course even after the penalties in the labor market have disappeared.