What happens if you graduate in a recession?

As the UK economy enters a potentially turbulent period, it’s important to think about how far graduates who enter a more volatile job market are disadvantaged.

This begs an obvious question – what happened the last time the UK was in recession? To consider this, we can look at annual data on employment and study outcomes for graduates six months after they leave higher education.

The financial crisis first affected graduates in 2007-08. The UK economy had its first quarter of negative economic growth between April and June of 2008 – just as those students were graduating.

The proportion of 2007-08 graduates in professional roles fell by 3 percentage points compared to the previous year, and their unemployment rate increased by the same figure.

<b>Employment outcomes six months after graduation</b>

But, after a further 12 months of economic contraction, the impact on the graduates of 2008-09 was more nuanced.

The rate of employment in professional roles fell again, this time by a further 4 percentage points, to just 45 per cent, probably due to firms cutting back graduate schemes. And yet the unemployment rate increased by only 1 percentage point.

Instead, increases in both the proportion of graduates in non-professional employment and in postgraduate study made up the difference.

This suggests that some graduates lowered their expectations to get into the workplace, while others decided to sit out the worst of the recession and use the time to become better qualified.

More recently, prospects have been much brighter. The economy recovered somewhat erratically until 2012, but has had fairly steady growth since and employment outcomes for graduates have responded accordingly.

The proportion of graduates in professional jobs six months after graduation has risen from 2011-12 onwards and reached 56 per cent for those graduating in 2014-15.

At the same time, the unemployment rate and the proportion of graduates in non-professional employment have decreased steadily.

Differences by qualification

The recession seemed to make it more important that graduates do well in their studies.

In 2006-07, the unemployment rate for those with a lower second-class degree was 2 percentage points higher than for those with an upper second. By 2008-09 this had grown to 4 percentage points.

This fits with other evidence that those who are better qualified and higher skilled tend to be less affected in economic downturns.

Differences by subject

Subject studied also seemed to matter. Graduates in medicine, nursing and education were relatively unaffected by the recession as they tend to take jobs in sectors little impacted by economic fluctuations.

Conversely, the construction industry was badly hit. The professional employment rate for graduates in architecture, building and planning fell from 79 per cent in 2006-07 to 54 per cent in 2008-09.

Regional variation

Finally, the speed and scale of deterioration in the graduate labour market varied greatly across regions. So the recession seemed to affect graduates depending on where they came from.

The professional employment rate for 2006-07 graduates was, for example, 52 per cent in Yorkshire and the Humber, and the North-East.
By 2010-11 it was 48 per cent for Yorkshire and the Humber, but only 42 per cent for the North-East.

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Chart designed by Richard Muir | r.muir@hefce.ac.uk

Does a bad start have long-term effects?

If a bad start in the labour market has a longer-term impact, then graduating in a recession could mean getting a lower financial return from higher education. Evidence from Canada suggests that unfortunate graduates entering the labour market at the wrong time can have persistently lower earnings.

It is not known if this is also the case in England. Our limited evidence suggests that the differences seen in outcomes after six months are smoothed over a longer period. For each of the graduate cohorts in 2006-07, 2008-09 and 2010-11, 69 per cent of graduates were employed in a professional role after 40 months.

Of course this is far from conclusive, but it is hoped that the Longitudinal Education Outcomes (LEO) dataset will make it possible to better understand the returns to education over time and hence shed light on important policy questions such as the effect of recessions.