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The young people who got screwed by a strong economy

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(Bloomberg) — When the housing market was hot, from the late 1990s to 2006, there were many good jobs that didn’t require a college education. For a certain kind of high school grad, paying tuition started looking like a dodgy proposition.

Then the boom went bust.

For one reason or another, the young construction workers and sales agents who skipped college to enter the workforce never went back, opening a schism between the boom-time workers and the college-going generation that came of age after the economy went splat.

That’s the story sketched out in a new working paper, published by National Bureau of Economic Research, from professors Kerwin Kofi Charles and Erik Hurst at the University of Chicago and Matthew Notowidigdo of Northwestern University. The three used Census Bureau, Department of Education, and Labor Department data to track what they call “college attainment” through the housing cycle.

They found that the annual increase in the share of young adults who attended at least some college, which had been steady since the early 1980s, slowed in the late ’90s. The slowdown was more dramatic in markets whose home prices were growing fastest, and it was mostly confined to students attending two-year colleges.

That’s logical enough. If a strong housing market creates jobs and boosts pay — for people building and selling new homes, as well as for retail clerks, waitresses, and nannies — matriculants pay a greater opportunity cost.

It makes even more sense when the researchers drill down on which potential students were ditching class. The percentage of young adults with bachelor’s degrees actually ticked up in some cities, perhaps because the wealth accruing in hot housing markets made it easier for parents to finance their children’s education.

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On the whole, however, workers lured away from college during the housing boom didn’t catch up during the bust. “Our evidence suggests that these cohorts have experienced a sort of ‘educational scarring,’ whereby their rates of attainment are permanently lower than would have been true had there been no boom,” the authors wrote. That cohort’s lower productivity, the authors suggested, may have contributed to the slow pace of the overall economic recovery.

Millennials are often described as having been thwarted by the bad luck of having had to launch careers in a terrible job market. For some older members of the generation, however, the misfortune seems to have been getting started when the economy was good.

See also:

IRI: Many millennials would pick Oprah for financial advice

Financial picture brightens for millennials (but not boomers)

Who is the affluent generation now?