The Effect of Labor Market Conditions at Entry on Workers' Long-Term Skills

Using data on adults' cognitive skills from nineteen countries, this paper shows that labor market conditions during the education-to-work transition affected workers' long-term skill development. Workers who faced higher unemployment rates at ages 18 to 25 have lower skills at ages 36 to 59. Unemployment rates at ages 26 to 35 do not have such an effect. Skill inequality is affected: those with less educated parents experience most of the negative effects. Using German panel data on skills, I document a mechanism related to heterogeneous skill development across firms: young workers at large firms experience higher skill growth than those at small firms.