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Born in 1988? Sorry. - Bloomberg View

E C ON OMIC S

Bornin1988?Sorry.

JUL8,20148:00AMEDT

ByPeterR.Orszag

aA

It'sbadlucktobeborn20yearsbeforeatimeofhighunemployment.Itaffectsyourincomewhenyouentertheworkforce,naturally,
butthat'snotall.Itcankeepyourearningsrelativelylowandchipawayatyourhealthandhappiness,aswellforalifetime.
Manystudieshavedocumentedtheincomeeffect.Atypicalestimate,froma2010study,isthateverypercentagepointincreaseinthe
unemploymentrateduringtheyearapersonenterstheworkforcereduceshisorherwagesby6percentto7percentonaverage.And
thereductionpersists,thoughitdiminishessomewhatovertime.Even15yearson,aperson'swagesare2.5percentlowerforevery
percentagepointincreaseintheunemploymentratethathappenedwhenheorshegraduatedfromcollege.
Thiscanmakeforbigdifferencesamongmembersofthesamegenerationwhoarebornjustafewyearsapart.Compareapersonborn
in1988,whograduatedin2010,whentheunemploymentrateaveraged9.6percentwithsomeonebornin1984whograduatedfrom
collegein2006,whentheunemploymentrateaveraged4.6percent.Thepersonunluckyenoughtobebornin1988hada30percent
to35percentlowerwageatgraduation.Andattheirrespective15yearreunions,the2010graduateisexpectedtobeearning12.5
percentlessthanthe2006graduate.
Similarly,theclassof1982(apeakunemploymentyear)isestimatedtohaveearnedabout$100,000lessinnetpresentvalueover
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theirfirst20yearsofworkingthandidsimilarstudentsintheclassof1988(apeakemploymentyear).
Peoplewhohavegraduatedintoaweaklabormarkethavealsoturnedouttobelesssatisfiedwiththeirlivesthanpeoplewho
graduatedintostrongerlabormarkets,accordingtoanewanalysisoffivedecadesofEuropeansurveydata,conductedbythe
economistsDavidCutlerandWeiHuangofHarvardUniversityandAdrianaLlerasMuneyoftheUniversityofCalifornia,Los
Angeles.Suchpeoplehavealsobeenmorelikelytobeobeseandtosmoke.
Althougheveryoneborninanunluckyyearsuffers,thosewhohaverelativelymoreeducationsufferless.Forthosewithoutany
formalschooling,enteringacareerduringayearwhenunemploymentis5percentagepointshigherthannormalbooststheirchances
ofsmoking2.5percentto5.5percent.Forthosewiththreeyearsofcollege,bycontrast,thechanceofsmokinggoesupbylessthan1
percent.Inotherwords,badtimestodayraisesmokingratestomorrowamongallkindsofpeople,butbymuchlessforthosewith
moreeducationandhigherincomes.
Somepreviousresearchhassuggestedthatpeoplegethealthierduringarecession,perhapsbecausetheydriveless,becausetheylack
thedisposableincomeittakestobingedrink,orbecausethequalityofhealthcarestaffingimproves.TheCutlerteamfindsamore
intuitiverelationshipbetweenrecessionandhealththatbadtimesleadtopoorerhealthbecauseitshowstheconnectionbetween
currenteconomicconditionsandhealthlateron.
TheeconomiststhenlinktheirfindingstoaconnectionI'vediscussedinpreviouscolumns:theonebetweenincome(oreducation)
andhealth(includinglifeexpectancy).Bothwithinandacrosscountries,theynote,higherincome,bettereducatedpeoplelivelonger
andenjoybetterhealththanlowerincome,lesseducatedpeopledo.Thedifferencesvaryinsizesignificantlyacrosscountries,
though,whichhasbeenapuzzle.
Cutler'steamproposesanexplanation:Countrydifferencesinthehealthgradientbyeducationaredriveninpartbydifferencesin
labormarketconditions.HigherunemploymentincountryAinagivenyearwillsteepenthatcountry'sgradientinsubsequenthealth
outcomes,sinceitshighlyeducatedpeoplesuffermuchlessharmthanitslesseducatedpeopledo.Theeconomistsconcludethat
labormarketconditions(whichvaryfromcountrytocountry)atthetimeagenerationenterstheworkforcecanexplain15percentto
70percentofhealthgradientdifferencesacrosscountries.
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Ultimately,Cutlerandteamnote,"labormarketconditionsearlyinlifehavealonglastingeffectonhealthaswellaseconomic
outcomes,andtheseeffectscumulate."Formacroeconomicpolicymakers,thelongtermharmtopublichealthfromweakeconomic
conditionsincreasestheurgencyofavoidingorattenuatinghighunemployment.
Sincethebusinesscyclewillneverbefullyeliminated,though,itisworthconsideringwhatindividualscandotoprotectthemselves
andtheirchildren.Onestrategythat'simpossibletofollowconsistentlyistosimplybelucky:Beborn20yearsbeforeaneconomic
boomratherthanabust.
ThiscolumndoesnotnecessarilyreflecttheopinionofBloombergView'seditorialboardorBloombergLP,itsownersandinvestors.
Tocontacttheauthoronthisstory:
PeterROrszagatporszag3@bloomberg.net
Tocontacttheeditorsonthisstory:
MaryDuenwaldatmduenwald@bloomberg.net
MaryDuenwaldatmduenwald@bloomberg.net

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