Cohort Size and Youth Earnings: Evidence from Ontario

Abstract

This article studies a policy change in Ontario that reduced the duration of high school from five to four years. A result of this educational reform was the creation of the Ontario double cohort: the last cohort educated in the old secondary school system and the first cohort educated in the new one. Although they started school at different times, both cohorts graduated from high school in 2003. Four years later, Ontario experienced a 28 percent increase in new university graduates. By comparing the pre- and post-reform wage gap between new entrants and seasoned workers with a bachelor’s degree in Ontario versus that in the rest of Canada, I identify the impact of an excess labour supply shock on earnings. A triple-difference estimation using Canadian Labour Force Survey data suggests that the labour supply shock decreased the hourly wage rate by 7.6 percent among recent university graduates, which corroborates the result obtained using Canadian Census data. I also find that the labour supply shock decreases the proportion of university graduates taking a full-time job in the first year of their career. Moreover, I observe an increase in the proportion of recent university graduates working in small firms and landing in a low-paid occupation and industry. Last, I find that the depressing effect on wages is long-lasting. The negative impact on the wage rate persists for at least ten years after graduating from university.