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Magazine / THE NEXT ECONOMY

Early Career Moves Are The Most Important

Millennials forced into low-level jobs may suffer from the impression of underachievement.

May 8, 2010

It's not a tough job market for all college upperclassmen. Gordon Hayward and Kyle Singler, star basketball players for NCAA tournament finalists Butler and Duke, respectively, recently saw their employment outlook brighten dramatically. According to economist David Berri, NBA prospects who appear in the Final Four are typically drafted just over a dozen spots higher than they otherwise would have been, an improvement that can be worth several million dollars in pay over the course of a rookie contract.

Berri's research also indicates that this winner's aura is, in fact, illusory: Controlling for other factors, leading a team to the Final Four has no discernible effect on a collegian's pro performance. Yet year after year, NBA general managers think they see something special in Final Four stars, and they eagerly reach for them as a result. (Hayward, a junior, has taken advantage of this potential windfall by declaring for the draft; Singler opted to stick around for his senior year.)

 

Although Berri's analysis may be limited to the exotic world of professional basketball, the principles that it demonstrates are not. Small signals of promise at the beginning of a career can matter enormously to the trajectory that career takes. Yet those signals are often as much the product of luck as of skill.

That, in a nutshell, is the problem facing new college graduates and other young workers today. The early years in the job market are "the most important for signaling" one's career potential to employers, says Lisa Kahn, an economist at Yale University. "All you've got is college at first, so there's a lot of room for employers to form impressions. After a few years and a few jobs, those impressions solidify and it's harder to change them." With jobs scarce today, many Millennials are being forced to take low-level, low-status jobs -- if they can find work at all -- creating an impression of underachievement that may be hard to shed.

Kahn's research shows that for every 1-point increase in the unemployment rate, the starting income of new graduates falls, on average, by between 6 and 7 percent; people who come out of school in times like these often make only three-quarters the starting salary of those who come out in more bountiful times. And the earnings gap endures as the years roll by. Even at midcareer, Kahn has found, people who first entered the job market in a recession are more likely to work in low-pay, low-status positions and industries, and less likely to work in professional occupations. Many appear to have gotten stuck on the slow track, for reasons largely outside their control.

"Earnings tend to grow much more [quickly] early in one's career than later," says Princeton University economist Henry Farber. One prominent study shows that, adjusting for inflation, about two-thirds of all lifetime income growth occurs in the first 10 years of a career, when people can switch jobs easily, bidding up their earnings. People who can't immediately step onto this steep portion of the career curve thanks to a bad economy have a hard time doing so later, when houses and marriages have made them less mobile, and when many employers will look askance at their disappointing résumés. Even an eventual return to boom times won't change that, Farber explains. "If you happen to have the bad draw early on and the good draw later, it's going to be hard to fully recover."

The Price Of 'Funemployment'

The research of Kahn, Farber, and others stands in contrast to the common cultural perception of one's early 20s, which are often regarded as a sort of netherworld between adolescence and adulthood. As marriage and children have receded further into the future, the importance of stepping crisply into a career has seemed to wane, crowded out by a series of other interests -- travel, artistic experimentation, Xbox. Even before the Great Recession began, the percentage of people ages 16 to 24 who are idle -- that is, neither in school nor in the workforce -- had been rising steadily for nearly a decade.

Yet if anything, the early years of a career -- at least for college graduates -- may have become more, not less, financially important in recent years. The shapes of careers are changing: They can end more abruptly, and middle-aged workers who've accumulated job- or industry-specific skills can find their earning power suddenly truncated.

And to the extent that companies once underpaid young workers in order to overpay older ones, they can't anymore. Rising free agency has forced companies to pay their workers more nearly what they're actually worth, enabling some skilled young workers to earn more, faster. But it has also resulted in a faster sorting of high-potential workers from low-potential ones. The window for getting onto a good track, arguably, is narrower than it used to be.

Of course, no one should live only for a career. For many people, the trade-off between career potential and "funemployment" at age 24 or a more congenial, leisurely lifestyle at age 26 will be worthwhile. The key is to recognize the extent of the trade-off: Workers who don't find strong roots in the job market early on are sacrificing not just current income but in most cases substantial future income as well.

So how to respond to the tough job market? The most obvious advice is also the best: Use these lean years to get more education if you can. The salaries of college graduates may have stagnated during the past decade, but the financial return to getting a college degree remains very high. Young people who push themselves to get more education -- be it finishing high school, junior college, college, or professional school -- put themselves on better economic footing once they get out of school, no matter the economic climate. (There are, of course, exceptions, particularly in graduate education: Master's degrees and Ph.D.s in the humanities and some social sciences do not routinely result in higher earnings, and those professional schools that lead to relatively low-income careers -- journalism is a good case in point -- may not justify the cost of getting an advanced degree.)

The Value Of Mobility

For those who are leaving school and entering the job market, there's a fine line to be walked. Job expectations must be calibrated to the economic climate, of course, and holding out for the perfect job -- turning down reasonable offers or simply trying to wait the recession out -- is likely to turn out poorly for most people.

Yet times like these can also induce an unhealthy conservatism and an unwillingness to take calculated risks. Many Millennials have stayed put throughout this slump, figuring that job prospects are poor everywhere and counting on the emotional (and sometimes financial) support of nearby family and friends. In 2008, the last year for which data are available, fewer people moved, as a percentage of the population, than in any year on record. But, in fact, opportunities vary tremendously from place to place. In Detroit and Miami, for instance, there are roughly nine unemployed workers for every job opening; in New York City, San Jose, Baltimore, and Salt Lake City, there are only two -- and in Washington, the ratio is 1-to-1. Footloose young people are often in the best position to take advantage of these disparities by moving where the jobs are -- or at least planning aggressive job-seeking visits.

And even in this economy, a stable but low-level job in an unremarkable company may not be as good a long-term bet as a stretch role at a start-up, or a yearlong internship with a prestigious company. Early on, signals matter more than stability.

It's an unlucky time to be starting a career. But luck isn't everything. This is a time that requires hustle, adaptability, entrepreneurialism, and hard strategic thinking. Despite the pressures they face, Millennials who exhibit these characteristics are likely to get through this period just fine.

The author is a deputy managing editor of The Atlantic.

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