Introduction: A Good Start? Determinants of Initial Labor Market Success

Abstract

Some of the most important but difficult issues in modern societies revolve around a simple question: What factors ensure that a young person will have a good start when she or he first enters the labor market? The importance of this question has been driven home by three sets of research findings. First, there is substantial persistence in labor market outcomes over the life cycle. Good or bad outcomes early in a career are strong indicators of long-term success or failure. Second, although immutable factors like parents’ education exert a powerful and lasting influence on children’s outcomes, there is an important causal role for potentially malleable factors like schools, neighborhoods, and local institutions. Third, some groups of youth—particularly those from disadvantaged family backgrounds—appear to be especially vulnerable to both temporary shocks and permanent features of the environment in which they were raised. Traditionally, economists have thought of employment as a key metric for assessing the initial success of young people. By this standard, youth are much worse off today than in earlier decades. As shown in figure 1, the average fraction of 16–24-year-olds working in any week fell from around 60% in the late 1970s to around 50% today. The decline for teenagers was even steeper. A closer examination of the relative employment rate of youth (plotted in the bottom line in fig. 1) suggests that it has been trending downward over the past 40 years, with discrete declines after each of the last four recessions (in 1982–83, 1991, 2001, and 2007–9). Viewed from this perspective, the Great Recession is just the latest in a long series of setbacks for young workers. Of course, employment is only part of the story. Given smaller family sizes and higher incomes, an increasing fraction of US families may decide