Early Labor Market Prospects and Family Formation

We use quasi-random variation in graduation years at the onset of a very deep Swedish recession to study the impact of graduating during a recession for female vocational high school students. We find severe but short-lived labor market effects, with lasting consequences on family formation, in particular for low-GPA women. The affected women married and had children earlier. They accepted lower-“quality” spouses, and divorce rates increased. These patterns suggest that young women respond to early labor-market prospects by changing the “quality” threshold for entering into family formation. This process drastically increased the frequency of welfare-dependent single mothers two decades thereafter.