Young workers suffer longer from recessions | 5/17/2016 | Staff
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As the saying goes, last in, first out. It's particularly true for young workers in recessions when the impact on their earnings can last a lifetime.

Previous studies have found that the unemployment rate for young workers in the 21-to-25-year-old range increases twice as fast when the economy goes into a recession as the rate does for prime-age workers, defined as ages 25-54.

Countries - World - People - Business - Cycle

"This is true in countries across the world. Young people are much more exposed to business cycle risk," said Indrajit Mitra, assistant professor of finance at the University of Michigan Ross School of Business.

Mitra and co-author Yu Xu of the University of Hong Kong knew that individuals in the early stages of their careers have the fastest growth in wages, so any restriction can have a lasting impact. But it has been hard to explain the reason for such large differences in unemployment risk between young and prime-age workers.

Behavior - Stock - Price - Firm - Kind

So they looked at whether the behavior of the stock price of a firm could better explain the kind of individuals the firm employed. In particular, they asked if financial valuations provide an explanation for why the unemployment rate for young workers increases twice as fast as the corresponding rate for prime-age workers during recessions.

"Our model predicts the unemployment risk of young workers relative to prime-age

Workers - Productivity - Shocks - Equity - Market

workers to be more sensitive to productivity shocks when equity market risk premium is

high, and in industries with more volatile stock prices," Mitra said.


It's sometimes perceived that younger workers are unemployed because they don't want to work, he said.

"We thought that seemed far-fetched. People get unemployed because firms are not hiring them,"...
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