UNDERNEWS

Undernews is the online report of the Progressive Review, edited by Sam Smith, who has covered Washington during all or part of one quarter of America's presidencies and edited alternative journals since 1964. The Review has been on the web since 1995. See main page for full contents

May 18, 2009

RECESSIONS: THE PAY LOSS YOU CAN HAVE FOREVER

James McCusker, Everett Herald, WA - 19th century scientist Louis Pasteur, whose work in immunization and disease control continues to enrich our lives today,e said, "Chance favors the prepared mind.". . .

The role of chance, and Pasteur's words, come to mind when reading a research report by Lisa B. Kahn, an assistant professor at the Yale School of Management. The paper, "The Long-Term Labor Market Consequences of Graduating from College in a Bad Economy," begs for a more supermarket-friendly title, but it tells an interesting story and is a very worthwhile read. . .

It is easy to see why graduates see lower salaries when they start their careers. That is the nature of recessions, where there are simply more people (supply) trying to obtain fewer jobs (demand). What is difficult to explain is why, on average, they never catch up. Seventeen years -- the scope of the study -- is a long time. Our recessions tend to be short, and we would expect that college graduates would be able to dust themselves off and get back in the game.

We may find the answer in a facet of human behavior that is well known, but not really a part of economic theory - at least not yet. Actors have a saying that summarizes it: "If you want to be a leading man or leading lady, play leads." The idea is that if you play supporting roles, or character parts, casting directors will never see you as leading man material. . .

In the same way, many employers see a salary history and use it to define the person. The result is an inefficient allocation of resources in our economy.

2 Comments:

Anonymous Mairead said...

I should think this is moderately well-known to people in the workforce.

I'm far from the sharpest knife in the drawer, but even before I became a boss I got very hard lessons in the way salaries are determined.

It's one of the things that hold women down - we're talked into taking a lower salary "with an early review", but find that we never catch up because of how no increase can be more than a certain percentage of the existing salary.

When I became a boss, I found that I was blocked in trying to provide the women in my engineering group with catch-up. I could do something early on because the corporation was at risk of a really massive EEO lawsuit, but once the worst edge had been taken off the inequality, everything congealed.

It was an interesting and instructive experience. Also utterly disgusting.

May 19, 2009 1:40 PM  
Anonymous PFL said...

Hear hear,

Very astute observations. DC is a very dysfunctional place not that NY or any other big city (save Porland, OR) is any better. Only in DC, you've got a media that think's it's all about them and all those rertiring politicos/lobbyists who never go home since they know where the big bux are. Plus there are way too many lawyers and ignoramus Federal executives who should all be locked up.

I worked for the Feds as a semi-grunt analyst for 32 years and that was enough. For putting up with a lot of BS, I received a decent Civil Service retirement (the old CSRS indexed to inflation)
and fairly good Blue Cross health insurance.

However, the first chance I got to leave the DC metro area, I grabbed it. Luckily, I unloaded a townhome in Northern VA before the real estate bubble burst.

Now I'm living a quieter life in Delaware and the only things I miss about the DC area are the museums, the zoo, and the restaurants. The last time I was there for Xmas 2008 I broke out into a skin rash probably from freaking out with all that traffic. Needless to say I don't miss the morass.

Anyhow, that was a great essay.

May 19, 2009 4:45 PM  

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