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

Using data on adults’ cognitive skills from 19 countries, this paper shows that labor market conditions during the education-to-work transition impact workers’ long-term skill development. Workers who faced higher unemployment rates at ages 18-25 have lower skills at ages 36-59. Unemployment rates at ages 26-35 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.