The Great Depression of Income: Historical Estimates of the Longer-Run Impact of Entering the Labor Market during a Recession

Abstract

Abstract In this paper, I estimate the longer-run impact of variation in labor market entry conditions, driven by the Great Depression, on income and other labor outcomes in the 1940 Census. I use a regression discontinuity research design and find that 10 years after entry, less educated men entering the labor market at the beginning of the Great Depression earned 8.6 % less than those entering just one year prior. I find that the effect is larger (14.7 %) for those born in states more negatively affected by the Great Depression and close to zero for those born in states relatively less affected. The results indicate that the Great Depression had a persistent, negative impact on less-educated entrants that is not significantly different from that experienced by unlucky entrants of modern recessions.