The United States faces a generational gap in wages with a very clear dividing line: between those who graduated before 2008, and those who finished college during and after that fateful year, which marked the depths of the Great Recession and global financial crisis.
That’s because graduating during or in the immediate aftermath of the worst economic downturn since the 1930s meant sky-high unemployment rates — and rock-bottom wages for those lucky enough to get their foot in the door.
"Data on youth unemployment rates show a sharp rise during and after the 2008-09 recession – both on an absolute and relative basis," Spencer Hill, economist at Goldman Sachs, writes in new research report. "Unemployment rates in the 16-24-year-old segment rose by 7.9 percentage points to 19.0% between Q4 2007 and Q4 2009, compared to +5.1 percentage points to 9.9% for the population as a whole."
The average earnings discount for young workers widened by 4% to 6% in the years following the recession, Hill added.
"While youth underperformance is typical of recessions, the effects of the most recent downturn appeared larger and more long-lasting than average," said the report, ominously titled "The lost generation: recession graduates and labor market slack."
"However, despite a partial recovery, the earnings gap remains: relative wages on this basis have only retraced a third of the post-recession decline."
Hill points to academic research that corroborates his findings.
Along similar lines, a New York Fed paper finds that "though labor market conditions steadily improved following the Great Recession, underemployment among recent college graduates continued to climb, reaching highs not seen since the early 1990s."