Elsevier

Labour Economics

Volume 67, December 2020, 101926
Labour Economics

The long-term effects of labor market entry in a recession: Evidence from the Asian financial crisis☆

https://doi.org/10.1016/j.labeco.2020.101926Get rights and content

Highlights

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    We study the long-term effects of labor market entry in a large-scale recession.

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    We analyze college graduates affected by the 1997–1998 Asian financial crisis.

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    Among men, employment, earnings, and family formation are persistently reduced.

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    Among women, labor market penalty is short-lived, but fertility is increased.

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    Consumption is protected by reducing asset holdings and relying on family.

Abstract

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 the recession. For women, limited job opportunities at graduation resulted in an increase in childbearing. We also find evidence that family provides a risk-sharing mechanism for recession graduates. 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.

Keywords

Recession
Financial crisis
Long-term effect
College graduate

JEL classification

E32
J10
E21
J20
J31

Cited by (0)

☆

We thank the editor, two anonymous referees, Youngsoo Bae, Jesse Bruhn, Amie Chin, Jiwon Choi, Marie Connolly, Rebecca Diamond, Hank Farber, Federico Gutierrez, Catherine Haeck, Joseph Han, Jisoo Hwang, Lisa Kahn, Seik Kim, David Lee, Young Lee, Pauline Leung, Elaine Liu, Seunghoon Na, Jiyoon Oh, Cheolsung Park, Zhuan Pei, Mallika Thomas, Miguel Urquiola, Jungmo Yoon, and conference and seminar participants at AASLE, AEA, AMES, Asian Workshop on Economic Policy, Bureau of Labor Statistics, EALE, ESWC, Hanyang University, KLEA-KAAE-KASIO Joint Workshop, Princeton University, Seoul Labor Economics Working Group, University of Houston, University of Seoul, University of Tokyo, UQÀM, and WEAI for helpful comments and discussions. We also thank Weonhyeok Chung, Elizabeth Kayoon Hur, Hanbin Kim, and Sae Won Om for outstanding research assistance. Preliminary results on male college graduates’ labor market and family formation outcomes appeared in J. Choi’s M.A. thesis at Hanyang University, supervised by E.J. Choi and H. Son. The manuscript has been substantially changed and expanded from the earlier version in terms of analysis and writing. E.J. Choi and H. Son gratefully acknowledge financial support from the W.E. Upjohn Institute for Employment Research. E.J. Choi’s research was also supported by the Industrial Relations Section at Princeton University. A portion of this research was conducted while E.J. Choi was visiting the Industrial Relations Section and the Department of Economics at Princeton University. All remaining errors are our own.

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