Gen Y and "The Scarring Effect"

During recessions, Gen Y college graduates are likely to make 5%-15% less than those starting out during a better economy. A recent Wall Street Journal article noted that, "Notre Dame labor economist Abigail Wozniak calls it 'the scarring effect.' If you graduate in a good year, your career may get off to a strong start. But if it's a bad year, you are essentially scarred in the labor market for years to come."

This is indeed very scary for Gen Y because it means that we as individuals simply cannot control our own destiny. Growing up, we are taught that we can accomplish any goal that we set our mind to. When we are preparing for college, we get to pick our university, our degree program and the types of people that we associate with during those years. What this research is telling us, is that regardless of how hard we work and how many connections we make, it all may not be good enough if the job market is poor when we graduate and we either don't get a job or make substantially less than we would have had the economy been growing.

Unfortunately, this is the state of the labor market for recent college graduates. However, when the economy starts to hum again, it's likely that salaries will increase across the board because the same companies who weren't looking to hire when we graduated will then have to raise their price of labor in order to reach a supply/demand equilibrium.