Graduates could lose $25,000 or more over the next 5 years if the labour market does not improve soon
If the youth unemployment remains close to its June rate of 27.5% for the remainder of the year, this year’s graduates could lose $25,000 or more during the next 5 years compared to what previous graduates earned. For example, male bachelor’s degree graduates could lose $27,887 during this time span if the youth unemployment rate in 2020 will be 28.0% (Chart 2 in the Appendix). This represents a loss of almost $6,000 per year. Potential losses under this scenario range from about $23,000 to $44,000, depending on the sex and education level (see Chart 2, 3, and 4 in the Appendix).
Such losses are quite relevant given that many postsecondary graduates typically graduate with significant debt. According to the National Graduates Survey, 49% of college graduates from the class of 2015 held student debt at graduation. Among those who held debt, the average debt was $15,000. Among bachelor’s degree graduates, 54% held student debt at graduation, and the average debt load among those owing money was $28,000.
However, the size of the student debt load, as well as the magnitude of the simulated earnings losses under the scenario described above are quite small compared to the estimated benefit of graduating with a postsecondary qualification. In fact, Frenette (2019) found that over a 15 year period early in one’s career, male and female bachelor’s degree graduates earned about $500,000 more than their counterparts with a high school diploma.
Moreover, an annual youth unemployment rate of 28.0% would top the previous high of 19.2% set in 1983 by 8.8 percentage points. While it is clear that youth are very disproportionately affected during this pandemic due to restaurant, bar, and retail closures or reductions in operations, a turnaround in the youth labour market could happen quickly if the infection curve has been flattened significantly and physical distancing guidelines are eased as a result.
If instead this year’s youth unemployment rate roughly matches the historical high at 19.0%, earnings losses are likely to be far more moderate. For example, under this scenario, male bachelor’s degree graduates could lose $9,590 over the next five years, or less than $2,000 per year (Chart 2). In general, potential losses under this scenario, could range from about $8,000 to $15,000 (Chart 2, 3, and 4).
Under a scenario where the youth labour market recovers very quickly (i.e. the youth unemployment rate will be 16.0% this year), five year losses could be less than $6,000 for all groups, or less than $1,200 per year (Chart 2, 3, and 4).
Chosen excerpts by Job Market Monitor. Read the whole story @ Potential Earnings Losses among High School and Postsecondary Graduates Due to the COVID-19 Economic Downturn