Description

Recessions create enduring effects, or scars, on young individuals’ careers. I investigate how educational choices amplify or mitigate these scarring effects by income. Low-income young people face dual scarring effects: an increased likelihood of dropping out of college and enduring negative labor market entry effects. High- and middleincome young people strategically evade these repercussions by delaying labor market entry through timely college enrollment during economic downturns. I quantify the lifetime repercussions of experiencing a recession during two critical phases (around high-school graduation and college attendance) using a dynamic life-cycle model with educational choices calibrated to US data. I find that the negative consequences of recessions are largely concentrated on the low-income group.