Class of 2020 could lose $25,000 in potential earnings owing to COVID-19, study finds

High school and postsecondary graduates who are entering the labour force during the COVID-19 pandemic could lose thousands of dollars in earnings in the coming years because of the outbreak, according to a new study from Statistics Canada.

If the youth unemployment rate stays close to its near-record level of 27.5 per cent in June for the rest of 2020, this year’s graduates, on average, could lose $25,000 or more over the next five years compared with what previous cohorts earned, Statscan estimates.

“Often, the implications of a poor start to one’s career can follow these new graduates for years,” the report said. “The concern is that this year’s graduates will enter the labour market under unusually difficult and unpredictable conditions.”

Statscan looked at the potential earnings impact at five levels of annual youth unemployment, ranging from 16 per cent to 28 per cent. (The long-term average is 14.3 per cent.) It used the historical relationship between graduates’ earnings and the youth jobless rate (for ages 15 to 24) to simulate how this year’s cohort could fare.

Outcomes differ by sex and educational attainment, and the study found that female postsecondary graduates could suffer more than men. If the youth unemployment rate remains at 28 per cent, for instance, female bachelor’s degree graduates may lose nearly $44,000, compared with roughly $28,000 for their male counterparts.

The report’s authors were unsure why women were more negatively affected. They did float one theory, however: Women are more likely to choose degrees that are typically associated with lower pay, such as arts and the humanities, and that could be more cyclically sensitive.

Four months into the pandemic, it’s clear that young Canadians are among the most deeply affected segments of the labour market. As of June, employment for those aged 15 to 24 was down 23 per cent from February (about 580,000 jobs), with young women sustaining deeper losses (26 per cent) than men (19 per cent). By comparison, employment for those aged 25 to 54 has declined by 6.5 per cent during the pandemic.

In some respects, the recovery could take years to play out.

A 2012 report in American Economic Journal: Applied Economics tracked the earnings of Canadian men who graduated in previous recessions. It found that, on average, it took a full decade for those graduates to close the earnings gap with peers who entered a stronger labour market, resulting in a 5-per-cent hit to lifetime earnings.

Under the best-case scenario in Tuesday’s study, with youth joblessness at 16 per cent, the five-year earnings loss would top out at nearly $5,500 for women with bachelor’s degrees. In all scenarios, high-school graduates suffer the largest percentage losses of potential earnings.

With jobs tough to come by, current students and recent graduates are able to tap into federal programs for income support. The Canada Emergency Response Benefit (CERB) – which pays out $2,000 every four weeks – is available for individuals whose income was deeply affected by the pandemic.

For those who don’t qualify for CERB – say, students who weren’t working as the pandemic hit – the Canada Emergency Student Benefit pays out at least $1,250 every four weeks, between May and August.