Cohort Changes in the Transition from School to Work: What Changed and What Consequences did it have for Wages?

PWP-CCPR-2005-042

Abstract

This study examines the changes in the school-to-work transition in the United States over the latter part of the twentieth century and their consequences for the wages of young adults. In particular, we document the various types of work and schooling experiences acquired by youth who came to adulthood in the U.S. during the late 1960s, 1970s, and through the 1980s. We pay particular attention to how the differences across cohorts in these transitions vary by gender and race/ethnicity and how these differences affected their subsequent wage attainment. Evidence is evaluated using data from National Longitudinal Surveys of Young Women, Young Men, and Youth 1979.

 In general, we find that indicators of educational attainment, working while in school and non-school related work increased across cohorts for almost all racial/ethnic and gender groups. This was especially true for young women. Furthermore, various indicators of personal and family backgrounds changed in ways consistent with an improvement across cohorts in the preparation of young men and women for their attainment of schooling and work experience and their success in the labor market. The one exception to this general picture of improvement across cohorts was Hispanic men, who experienced a notable decline in educational attainment, the acquisition of full time work early in their adult lives and in a variety of personal and family background characteristics.

 With respect to hourly wage rates, we find that wages over the ages 16 through 27 declined across cohorts. However, the rate of growth of wages with age, particularly over adult ages, increased across cohorts for all racial/ethnic and gender groups, except black and Hispanic men. To assess the relative importance that changes in the school, work, military and other experiences had on wages across generations, we employ the decomposition proposed by Juhn, Murphy and Pierce (1993) to decompose the across-cohort wage changes in observable determinants, in their associated prices and in unobservable determinants, using a standard regression specification for the determinants of life cycle wages. We find that the dominant factor explaining the declines in wages across cohorts is attributable to changes in the prices of observable characteristics and to changes in unobservable determinants. At constant skill prices, changes in the skill composition across youth cohorts would have increased their wages, most especially for Hispanic women, followed by black women, white women, black men, and then white men. In striking contrast, Hispanic males’ wages would still have declined across cohorts purely accounting for compositional changes. We interpret this result as coming from the changing skill composition of immigrants. Our results also highlight the need for accounting for the endogeneity and selectivity of early skill acquisition.