Good luck, graduates

One of my favorite U Chicago professors, Austin Goolsbee, has a piece on how the job you get after graduation has a lingering effect on lifetime earnings.

Lost in the argument over whether young people today know how to work, however, is the mounting evidence produced by labor economists of just how important it is for current graduates to ignore the old-school advice of trying to get ahead by working one's way up the ladder. Instead, it seems, graduates should try to do exactly the thing the older generation bemoans — aim for the top.

The recent evidence shows quite clearly that in today's economy starting at the bottom is a recipe for being underpaid for a long time to come. Graduates' first jobs have an inordinate impact on their career path and their "future income stream," as economists refer to a person's earnings over a lifetime.

The importance of that first job for future success also means that graduates remain highly dependent on the random fluctuations of the economy, which can play a crucial role in the quality of jobs available when they get out of school. That is good news for this year's graduates, who are entering the work force with the economy growing, but rather disturbing for recent graduates who were driven by recession into taking less-than-ideal first jobs and are now aiming to work their way up.

I'm not sure how to interpret these findings. Firstly, the original paper he cites look at MBAs joining investment banks. Lots of MBAs want to get investment banking jobs because they pay big bucks, but when the market is down banks do not hire, and may lay people off. This means that an MBA class which graduates during a recession will have fewer banking jobs, and as a consequence, will have lower earnings on average because of this job mix. In a couple of years when things pick up, this same cohort will be competing with ex-bankers (laid off in the last recession) and brand new grads, who may be willing to work the long hours and do the boring work banking requires.

The same, to a lesser extent, goes to college grads where the upper pay ranges come from banking, and to a lesser degree, consulting. Both of those industries tend to hire lots of new graduates or those with prior experience, and are tough to break into for others. If you graduate when those industries are not hiring, your cohort will not do as well on pay, but that does not mean that you will not do as well as an individual wherever you land.