Lousy luck can keep your salary down -- if you let it

We all have our favorite quotations, of course. They help us find perspective, and sometimes even humor, in the often confusing events of our world.

One of my own comes from the 19th century scientist Louis Pasteur, whose work in immunization and disease control continues to enrich our lives today. He said, "Chance favors the prepared mind."

He was right, certainly, and his insight has added value for us because he didn't dismiss the significance of chance, or accident in our lives. Instead, in those five words, he managed to acknowledge the role that chance events play, while at the same time emphasizing the importance of hard work to prepare ourselves for such events.

We can see this in science, when sudden inspiration comes to those who have been working on a problem for a long time. And we even see it in sports. Anyone who watches baseball notices that the best players seem to get fewer "bad bounces." In reality, they get the same number but are just better prepared to handle them. Chance favors the prepared athlete, too.

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.

The study is not a mystery novel, so it is not unfair to reveal the ending. The last sentence of the abstract tells the tale. "Taken as a whole, the results suggest that the labor market consequences of graduating from college in a bad economy are large, negative and persistent."

Using Census Bureau data, Kahn found that white male college graduates who entered the job market during an economic slowdown earned less at their first jobs than previous graduates, and never really caught up. Seventeen years after graduation they were still earning less than the younger, less experienced but luckier graduates following them who entered a healthier job market when they left the campus.

These are, of course, averages, and nothing in the report's findings changes the fundamental truth in that other famous quotation, "Individual results may vary." Still, it is a humbling experience to look at the graph showing that fate refuses to be ignored.

Those of us who fervently believe that our every success is the result solely of our own efforts should take a look at this report. Among other things, it is a reminder that we can play well, or play poorly, but we have to play the hand we're dealt. And in the areas of employment and income for college graduates, as Kahn notes, "…luck truly does matter for those workers."

The study raises some important questions about economic theory and about the value calculations that influence behavior in a market economy.

Economists have done a considerable amount of research into the income effects of different career patterns, and it is clear that the recession graduates would feel the impact of their recession-driven choices for some time. Graduates who take jobs outside their educational field, for example, often have trouble re-establishing themselves on a career trajectory.

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 leadingman material. It's not totally true, but it is true enough to be a career factor.

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.

Hopefully Kahn's study will prompt further research into how some individuals "beat the system" and got back on the income track after a recession. This could provide a helpful guide not only to individuals but also for our economy. Chance favors the prepared individual, too.

James McCusker is a Bothell economist, educator and consultant. He also writes a monthly column for the Snohomish County Business Journal.