Entering the job market during a recession can leave lasting scars on workers’ careers and income: report

Getting your first job during a recession can have a lasting effect on young workers trying to enter the labor market, and income impacts persist for years, according to a report from TD economists.

He report released Thursday combines data from Statistics Canada and TD Economics, and argues that work-integrated learning (WIL) programs are a bridge that can help students gain work experience without leaving them as vulnerable to an unstable labor market.

“The stakes are higher for diverse students, such as women and visible minorities, groups that face greater career obstacles even in the best of times,” the authors wrote. “While there is no panacea for falling into a recession, work-integrated learning (WIL) programs offer a way to improve labor market outcomes.”

One of the things the authors looked at was the impact of graduating during the 2008 recession. They found that the percentage of college graduates in high-skilled jobs fell by 20 percentage points in this period compared to the pre-recession peak.

“This disruption took more than three years to recover,” the report states. “When opportunities are hard to find, workers often settle for less, and that affects the skills and income they can earn.”

While COVID-19 caused a similar disruption, the recovery was faster, the report said.

While recessions hurt the ability of all workers to find well-paying jobs or opportunities that lead to steady career advancement, the impact is much stronger for younger workers, the researchers found. Canadians aged 20 to 24 were the group hardest hit by unemployment during the last three recessions: 2020, 2008 and the 1990 recession.

Students who graduate during a recession may still earn less than their peers who graduated during a time of financial calm, even years later. The researchers found that lost wages amounted to approximately nine percent of annual earnings, and that this deficiency persisted up to ten years after graduation.

The problem of workers suffering lower incomes due to a recession is particularly acute for women and Canadians who are a racial minority. Before taking into account graduation during a recession, these groups already earn less than their peers after graduating, and the gender pay gap only widens as workers age.

“People who start out behind are more likely to fall behind, and women are most at risk,” the report states.

The report cited recent StatCan data that showed visible minorities earned about eight percent less than their peers after graduating.

A graph showing the labor income gap for racialized Canadians found that Arab and West Asian women earned less compared to baseline, approaching 15 per cent lower wages. Chinese men, black men, Filipino men, Southeast Asian women and Korean women also earned 10 percent less than the baseline, on average, the chart shows.

One way workers can mitigate the impacts of entering the workforce for the first time during a recession is to participate in WIL programs while still in school, to accumulate more experience and contacts, the report suggested.

Recent StatCan data showed that bachelor’s degree graduates who participated in WIL programs earned seven percent higher incomes than those who did not, the authors noted.

“This is very relevant for students, as their first job after graduating can become a solid foundation or an obstacle for their long-term career.”

The report adds that WIL programs can help women and those in visible minorities close some of the gap they will face when they enter the workforce full-time. Co-op programs have been shown to help students earn higher salaries than their peers who did not participate in them, according to the report.

The unemployment rate in Canada was 5.8 per cent in December, up from a low of 4.9 per cent in July 2023. As job seekers feel the pressure, it is Canadians from disadvantaged groups who the more they will lose if a recession occurs.

Leave a Comment