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Highschool, Postsecondary Grads at Risk for Long-Term Earnings Losses Due to COVID-19

July 28th’s The Daily from Statistics Canada covered the possibility of depressed earnings outcomes for youth resulting from COVID-19.

In Short: Projections suggest the relationship between long-term career earnings and employment-outcomes after graduation (the level of earnings achieved, employment status, etc) may lead the high school and postsecondary graduates from the class of 2020 to achieve lower earnings in their first five years after graduation.

  • Estimated lost earnings range from $25,000 in a scenario where youth unemployment remains relatively static, to less than $6,000 in the most optimistic scenario presented.

Concerns about the disproportionality of these impacts have arisen, with the projections suggesting a gender disparity in earnings lost and higher-ratios of lost income among demographics with lower levels of educational attainment.

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According to StatsCan:

“The estimated earnings losses are based on the historical association between youth unemployment rates during the year of graduation and graduate earnings over the following years.”

The researchers center youth-labour in their analysis because:

  • Typically, it is new entrants to the labour market that are hit hardest during a recession.
  • The unemployment rate for youth (15 to 24 year-olds) almost tripled between February (10.3%) and May (29.4%)
  • Existing research has found that increases in the youth unemployment rate was associated with decline in earnings following graduation.

Notable Scenarios: If youth employment rates continue on a similar trajectory to its June rate (27.5%) leading to an annual rate of 28%, this will be the highest youth unemployment rate since 1983 by 8.8 percentage points, with an estimated $25,000 in lost earning.

“Graduates could lose $25,000 or more over the next 5 years if the labour market does not improve soon.”

Potential Earnings Losses among High School and Postsecondary Graduates Due to the COVID-19 Economic Downturn
  • 54% of bachelor’s degree graduates have student debt at graduation, with the average size of that debt being $28,000.
  • There is the possibility for a quick turnaround “if the infection curve has been flattened significantly and physical distancing guidelines are eased as a result.”
  • If the youth-employment rate matches 1983’s historical high of 19.2, earnings losses may be closer to $9,590 over the next five years.
  • If the youth labour unemployment rate recovers quickly and falls below 16.0%, losses could be under $6,000 for all groups.

The Bottom Line: The economic impacts of the pandemic may reinforce existing economic vulnerabilities, particularly among a younger workforce that is typically hit hardest during economic downturn. Projections suggest the rate at which the labour market achieves pre-pandemic employment numbers will determine lost earnings of new, particularly youth labour market entrants. The possibility of a swift recovery depends on a variety of factors, including how quickly the curve flattens and an ensuing reduction in physical distancing requirements.