Tough timing: Study looks at veterans to pin down the long-term effects of entering the labor market during a recession

Are lifetime earnings a product of the times? Veterans who entered the civilian market in periods of high unemployment have lower earnings for over a decade, have lower levels of prospective Social Security wealth, and appear to delay retirement (perhaps to compensate for the negative effects experienced early in their careers), and have higher levels of family instability. These results suggest that young workers who entered the labor market during the Great Recession are likely to experience negative effects throughout the first phases of their career; indeed, some of the effects could influence today’s workers through retirement.

Previous research has found that young people entering the job market during a weak economy face lingering negative effects, earning less than workers who joined the labor market during, for example, a period of low unemployment. Such effects can last for a decade or more. Because a student graduating from high school during a time when jobs are tough to find might adjust her job market entry by pursuing additional education, thereby improving her job prospects, it has been difficult to determine longer-term effects. In “Long-Term Effects of Leaving Military Service in a Weak Economy” (MRRC WP 2017-369, R-UM17-09), Italo Gutierrez and Jennie Wenger turn to draft-era (mid-1970s and earlier) military veterans to look at outcomes up to and including retirement.

Gutierrez and Wenger focused on vets because most had a relatively short stint, their decisions to join were driven by world events rather than personal choice, and they had few, if any, opportunities to time their exit from service into the labor market. Using information from the Health and Retirement Study, the researchers measured earnings over time, wealth accumulation, and retirement timing.

Gutierrez and Wenger found that veterans who entered the labor market during a period of high unemployment:

  • had lower earnings for more than a decade, regardless of military experience and additional education/training;
  • experienced negative effects on their Social Security wealth, as well as negative, but not statistically significant, effects on housing wealth and savings;
  • appear to make up for initially lower earnings and lower accumulated wealth by working past their normal retirement age.

The authors write: “Our results would suggest that veterans who transitioned into the civilian world during the recent Great Recession will experience lower earnings for a number of years and probably work longer. The same may be true of other young workers who entered the labor market during the Great Recession.”

Read the research brief or working paper.