April 2024

IZA DP No. 16898: Bad Times, Bad Jobs? How Recessions Affect Early Career Trajectories

Parag Mahajan, Dhiren Patki, Heiko Stüber

Workers who enter the labor market during recessions experience lasting earnings losses, but the role of non-pay amenities in exacerbating or counteracting these losses remains unknown. Using population-scale data from Germany, we find that labor market entry during recessions generates a 5 percent reduction in earnings cumulated over the first decade of experience. Implementing a revealed-preference estimator of employer quality that aggregates information from the universe of worker moves across employers, we find that 17 percent of recession-induced earnings losses are compensated by non-pay amenities. Purely pecuniary estimates can therefore overstate the welfare costs of labor market entry during recessions.