Good skills in bad times: Cyclical skill mismatch and the long-term effects of graduating in a recession

We show that cyclical skill mismatch, defined as mismatch between the skills supplied by college graduates and skills demanded by hiring industries, is an important mechanism behind persistent career loss from graduating in recessions. Using Norwegian data, we find a strong countercyclical pattern of skill mismatch among college graduates. Initial labor market conditions have a declining but persistent effect on match quality and skill mismatch early in their careers. Match quality of the first employment may explain up to half of the short-term and most of the long-term earnings loss from graduating in a recession. ; We thank the editor and two anonymous referees for their constructive suggestions, and also Bart Cockx, Peter Gottschalk, Robert Moffitt, and the participants at several seminars and conferences for helpful comments and discussions. Sørensen acknowledges support from ESOP, Department of Economics, University of Oslo. This research is supported by the Research Council of Norway Grant 202445. ; This is the author accepted manuscript. The final version is available from Elsevier via http://dx.doi.org/10.1016/j.euroecorev.2015.08.015