How does graduating into a recession affect you?

Graduating in 2020, 2021 or 2022?

Welcome to the recession. Expect stagnant wages for the first few years, lagging long-term growth prospect, and a feeling of playing catch up with previous successful cohorts.

If a recession hits, and the verdict is still out there, its impact on graduates lasts well into the future. Studying college graduates during the 1980s severe recession, Professor Lisa Kahn, then a researcher from Yale, found that graduates earn roughly 17.5 percent less per year had they graduated during normal market conditions. Only after roughly two decades does the persistently low wage effect wears off.

For the first 17 years after college graduation, the average wage loss in response to a 1 percentage point increase in the national US unemployment rate is 4.4 percent. For the highest national unemployment rate during the crisis, the lost in earnings could balloon up to 20 percent.

The economic loss to both the individual and the economy is significant. For the average college graduate in 2018 earning £23,000 annually, this translates into approximately £68,000 in lost earnings over the next two decades. Based on figures from the Brookings Institution, the combined graduate classes of 2008, 2009, and 2010 in the US lost over $330 billion earnings over 10 years.

Many economists expect a recession to arrive by the end of 2020, possibly lasting into the middle of 2022. Whipping off our rose-coloured glasses, we see red flags everywhere. The inverted yield curve, a weak US and UK’s Purchasing Manufacturer Index (PMI) and a worrying global outlook, for instance.

The silver lining is that the next recession will unlikely experience the scale of the Great Recession in 2007-09, which lasted for a whopping 18 months and whose aftermath is still felt today. Studying the past 100 years of recessions in the US, two Research Economist from Goldman Sachs, Jan Hatzius and David Mericle, argued that a “soft landing” is possible for the upcoming recession.

One reason is that inflationary overheating concerns are mitigated, in part because inflation expectations are better anchored to the Fed’s target. This results in a more modest inflation rise in response to falling unemployment, giving the Feds crucial room to manoeuvre around low unemployment. With this, they could afford to be more measured with changes in interest rates instead of adopting aggressive hikes to ward off an inflation spike.

The most important structural change is the improvement in monetary policy, which firmly anchored inflation expectations on the Fed’s 2% target. As large fluctuations in inflation rates dissipate, the Fed can use a cooler head to respond to labour market overheating.

Industrial and oil supply shocks, which once dominated the forefront of concerns, now takes a back seat as these cyclical industries comprise a much smaller share of US GDP than they once did. “Modern technology and supply chain management techniques have greatly reduced the inventory cycles and production volatility that used to weigh heavily on the economy,” Mericle reasoned.

The researchers argue that the recession risks look modest and better market conditions could provide a cushion for the economy.

“We think current concerns about recession risk are overdone, and the prospects for a soft landing are better than widely thought. While new risks could emerge, none of the main sources of recent recessions—oil shocks, inflationary overheating, and financial imbalances—seem too concerning for now,” Hatzius concluded.

Students can breathe a sigh of relief. In the same research by Kahn, she found that the extent of wage loss is dependent on the severity of the recession. Comparatively to the smaller recession in 1990, the average wage loss is lighter at 3% in response to a 1 percentage point increase of unemployment, and wages normalised after a 10-year gap, compared to a 17-year gap.

But whether the next recession is small or large, both job openings and the number of people quitting their jobs will plunge to relatively low numbers.

During the 2008 financial crisis, we saw in July 2009 the number of unemployed persons per job opening peaked at 6.4. Meaning each job in the United States had 6.4 unemployed persons vying for the role.

Firms either scale down on hiring or retrench existing staff (at times, both), deterred by incurring higher labour cost. Older workers tend to stay on longer in response to the effect of retirement savings on wealth, shrinking the doorway into the job market. All these means fewer opportunities for ambitious fresh graduates, especially as global investment banks are shedding tens of thousands of jobs.

This is especially worrying for fresh graduates. The first few years of working have profound impacts on the career development of an individual. Simply because these formative years shapes the experience and technical skills of the graduate, and the wage growth during the first five years of working are steep. Having doors shut in these first few years will be extremely consequential to the individual’s career development.

The next couple of years will be an uphill battle for those graduating in 2020 to 2022, especially those ill-prepared for the future. But with the knowledge that the future outlook is tough, be tougher.


But what can we do about it? For that, as part of a special segment we reached out to Stephanie Redding, Senior Careers Consultant for Warwick Economics department for her advice.

1) On top of securing internships and building our soft skills, how can current students further make themselves more competitive coming into these challenging times?

Students can use data to inform their approach about what hard skills are in demand from employers and identify some areas for personal development which play to their strengths. LinkedIn has produced a list of the hard skills companies most need in 2019. These include many digital skills such as video and audio production.

There may be opportunities to take optional modules or get involved in developing these skills through participating in student society activities or even through online tutorials. The ability to learn new skills is a skill in itself, so learning how to learn will keep you agile. Don’t forget to adopt a growth mindset and learn from your mistakes.

2) What will be some of the most important traits that recruiters will look for in the next one to three years?

The Future of Jobs Report 2018 by the World Economic Forum gives some key insights here:

It is interesting to see that active learning and learning strategies (as suggested above) and creativity, originality and initiative will grow in importance as the year 2022 approaches with “analytical thinking and innovation” remaining a top skill in demand. Employers are paying more attention to behavioural traits which connect to these skills in their recruitment processes and some are using gamification within their recruitment processes to assess these skills and traits.

3) Are there any initiatives by the University of Warwick to specifically prepare the current pool of students for a recession when they graduate?

Our central careers programme contains several workshops which could be particularly useful should we move into more challenging times. Resilience is a trait which is often looked for by recruiters and our session on this topic helps students with strategies on how they can positively deal with set-backs. We are also launching a new commercial awareness workshop this Autumn to ensure students are aware of and are able to effectively use the data sources on organisations which are available to them.

If there were fewer jobs around, Warwick careers staff can help students to tell their unique story and understand how to stand out from the crowd. We provide careers guidance and mock interview support to build confidence and enable students to discover and articulate their strengths and values.


Written by Christopher Lim