Getting Lucky on My Way to the Top

The market for economists was in a slump when I graduated.  I was fortunate to earn a visitor’s position at the University of Virginia and then a tenure-track position at Ball State University in Muncie, Indiana, but I had few alternative offers.  My colleagues in Muncie were good but after a few years I was unhappy enough with the university and the town to take a flying leap to become director of research at the Independent Institute in Oakland, CA.  At the time, I thought this was the end of my academic career.

David Theroux at the Independent Institute encouraged my academic work, however, seeing it as consistent with the Institute’s focus on research, and I kept publishing.  Events (and especially Tyler!) then conspired to bring me to GMU for which I am very grateful.

All this is by way of introducing Austan Goolsbee’s latest column in the NYTimes.  Goolsbee discusses two new papers which demonstrate that economic conditions in the year in which you graduate can have a surprisingly long-lasting effect on career earnings. 

The Stanford class of 1988, for example, entered the job market just
after the market crash of 1987. Banks were not hiring, and so average
wages for that class were lower than for the class of 1987 or for later
classes that came out after the market recovered. Even a decade or more
later, the class of 1988 was still earning significantly less. They
missed the plum jobs right out of the gate and never recovered….

These data confirm that people essentially cannot close the wage gap by
working their way up the company hierarchy. While they may work their
way up, the people who started above them do, too. They don’t catch up.
The recession graduates who actually do catch up tend to be the ones
who forget about rising up the ladder and, instead, jump ship to other

I take three points from my career and this research.  Leaving the academy turned out to be the just the thing to set me apart from the pack.  It didn’t have to work out that way but when your mean is low you need to throw some variance into the mix.  Finance theorists will recognize this lesson from options pricing theory. 

Second, I moved across the continent twice – from Fairfax, to Charlottesville, to Muncie, to Oakland and then back to Fairfax – sometimes with my wife and sometimes not – all in the space of about 10 years.  After moving so often, when I browsed book stores my decision to buy was based more on the weight of the book than on the price.  Jumping ship repeatedly, however, did help me to recover from a difficult beginning.

Third, luck matters.

Addendum: Now Open to Comments.


"Third, luck matters."

In health, too.

"Luck Matters"

I am pretty strongly in favor of free markets and meritocracy, and all that, but, there is no doubt in my mind at all that "Luck Matters" a heck of a lot. I graduated in 2002, and with the markets reeling, the accounting industry was quite heavily mixed up. That's life, went to law school instead, graduated got a job, things worked out. But there is no doubt in my mind that luck matters a whole lot. Perhaps of course, touching on immigration, the biggest "luck matters" event in our lives is just being born to the right parents in the right place.

Often enough conservatives like myself, and libertarians take meritocracy a little too far for my liking and forget how much "luck" has helped us along the way. Or perhaps as better put in a far earlier generation, "There but for the grace of God go I." Keeping that perspective helps keeps one appropriately humble.


Thanks for keeping this blog interesting. Its one of the best of the web.

Born under a bad sign
Been down since I began to crawl.

If it wasn't for bad luck
You know I wouldn't have no luck at all

Hard luck and trouble been my only friends.
I've been on my own ever since I was ten.

I can't read. Can't hardly write.
My whole life has been one big fight.

You know wine and women is all I crave.
A big-legged woman gonna carry me to my grave.

You know if it wasn't for bad luck,
I wouldn't have no kind of luck.
If it wasn't for real bad luck,
I wouldn't have no luck at all.

Title: Born Under A Bad Sign
Artist: Albert King
Composer: William Bell and Booker T. Jones

Mick, there's a stochastic element to everything important life, including careers. It's like in Texas Hold'em. We're all randomly assigned different hole cards, which interact with the community cards differently, have different stacks, playing against players of different skills, and future cards can make you rich or leave you poor. All you can do is try to learn the game you're in, study it closely by collecting as much information on both the nature of the game and the players, and make decisions which have are profitable plays from the longrun. No one can control which ways the wind blows, but you can make good decisions, and try to put yourself in positions to take advantage of the good luck when it comes your way.


I think very few people would argue for greater labor regulation simply based on luck being an important (or even the most important) component of individual economic success. Labor regulation simply doesn't seem the best tool to address this issue.

Instead many people have and do use the importance of luck in economic outcomes as an argument for a progressive tax system and for the need for a social safety net. Which is also why many "on the right" feel a need to deny that luck plays such an important role in the wealth and income distribution.

I think that the author of the paper is almost certainly correct that luck/business cycle plays a large role in lifetime earnings/achievment. While working as a consultant one of our clients was on of the first big internet search engines, they had many millionaries working there who could charitable be described as second-rate. They had the tremendous good fortune to be at a firm that IPO'd during a tremendous bull market.

But we shouldn't forget that many of us also had the tremendous good fortune to be born in free-market democracies where wages like this are even possible.

The market might provide it's gifts in a somewhat stochastic manner, but at least it provides those gifts at all.

I'm surprised this thread has so much emotion over "making your own luck" and whether one should blame the market or the state. Is luck this much of a libertarian hot button? Is calm rationality or emotion usually more favorable to the libertarian cause?

What Alex and Goolsbee are discussing here is a simple, empirical point, one which makes testable predictions and can provide practical advice. Namely:
-- try to graduate early or leave grad school if times are good
-- go for a masters degree or double major if times are bad, or take a year off and then resume schooling
-- if you are stuck in a bad cohort, take more risks to increase your variance.

This kind of advice would have been really helpful to me when I graduated from college, and I'm sure it will be helpful to future college graduates as well.

Scientific careers are remarkably luck-dependent. Nearly one hundred years ago, Max Weber, in his essay "Science as Vocation," noted that few careers depend on luck as much as science. Having the right advisor, getting that one post-doc or having the one conversation that sparks the idea leading to brillinat articles. Heck, the difference between six years as an assistant prof at Harvard and years in the post-doc market can be a single 30 minute job talk. Startling when you think about it.

There's also research that backs up Weber's intution. I cite the work of my colleague Scott Long, who has extensively documented this. He found that initial academic placement is not well correlated with observable qualities (like publications or citations) but that departmental prestige does have a subsequent impact on performance. In other words, there's a lot of luck in who gets jobs and how people move, but being in a strong department can help you become more productive. Bottom line: there's a lot of randomness in who ends up where, but where you end up has a big effect on how much you accomplish while you are there. (J. Scott Long. 1978. "Productivity and Academic Position in the Scientific Career," American Sociological Review 43: 889-908.)

So Alex was very lucky - all of his post-PhD jobs encouraged him to be productive and an opportunity opened at Mason. Of course, what you get out of your career depends on what you put in, but Alex's talents may have gone to waste if these events had never occured. Loyal readers of MR should be eternally grateful that Alex was so fortunate, or else this blog would be dedicated solely to "markets in everything," "facts of the day" and ethnic food reviews!

Luck, schmuck! Alex, tell us all again how your views of immigration demostrate how morally pure you are. I just love hearing it! It reminds me of pro-welfare liberals in the 70s--happier times for many!


I think we are saying the same thing. This:

"Alex is hugely talented, but talent and risk appetite are two different things."

is more or less my point. Risk appetite matters as a component of eventual success. It allows you the opportunity to recover from inevitable bad luck. There are some who are initially fortunate in the way of getting a large inheritance or some such, and those people never really have to engage in risk taking, but much of the year of graduation sort of luck can be mitigated or even capitalized on with a bit of intestinal fortitude.

I would also emphasize the research showing us how bad at managing risk we really are (remember that Tim Harford bit about rental auto insurance?). I'm arguing that luck would play a much lesser role in our lives if we understood better which risks are reasonable instead of defaulting to conservative all the time.

"That statement nicely illustrates the victory of ideology over evidence."

I kind of resent an underhanded blow like that.

Yes I am completely willing to admit that there are ... problems or that certain individuals at certain times face additional problems when getting into the job market. But you'll also find that people that graduate at the top tend to have a higher salary and be hired at a greater rate.

Those in the top of their class, might be lucky, but are more likely to be smarter and have a better work ethic.

God forbid that people be responsible for themselves.

Connections and filtering has a lot to do with it as well.

Without being offensive, I'd like to note that Alex's CV doesn't look that great up through 1999. But, what it does look like is that he is taking off on a successful research program. And, he had a connection with someone from a better school with a stronger CV. Maybe that's luck, and maybe it's skill, but I think it is the combination of the two that made it work out for him.

I'd also add that he hasn't had a mid-career fade (from marriage, kids, burnout, eldercare, this-old-housism or whatever). That helps too.

Lastly, my personal story is that I came out as an ABD in a good year (89) and didn't finish before the market tanked (in 91). I had two visiting positions, and then didn't get the amazing tenure track position I thought I deserved (in retrospect, I didn't).

I don't know how much difference that made, but I do know that by the time I had all my ducks in a row, I did not have as sharp a pool of employers to pitch myself to. I got a decent position, but one that was always more of a struggle than the one I could have locked up in 1989.

"Chairman Mao" above asks if graduates from elite universities are immune to these economic effects. I would say no. I graduated undergrad from Princeton, and the economic fortunes of each class of undergraduates were largely determined by the number of people investment banks and management consulting were hiring. Those two industries provide the lion's share of well-paying jobs for undergrads from elite universities, and if you get one, it can be a ticket to a high paying career in finance or business. Those industries, however, are also very cyclical, and their hiring targets in quality and quantity can swing wildly from year to year.

A student from Princeton can do well without either wanting or being offered one of those jobs, but his or her earnings 10 years out of college will be affected. And this isn't just a loss -- it could influence career choice. Students who don't go into investment banking may be more likely to pursue PHD's, nonprofit, or governmental careers that will pay less 10 years later.

Mickslam and Alex:

It isn't the case that allocating one's portfolio using the most risk averse strategy yields the best long term results for most people. It is actually pretty hard to beat inflation that way. So, if smart risks can't on average yield persistently higher returns, I'd assume your portfolios are all in money market funds?

Now, I agree that this sort of thing doesn't follow if we are talking about a single gamble in a single instance for all the marbles. Part of my argument is that people perceive many risks to be of the All The Marbles flavor when actually very few are. Further, the recognition that one's starting state is not where one wants to be makes the potential loss smaller relative to the potential gain.

Turning conservative after some bad luck can really cost you. It is the equivalent of selling low and abandoning the market.

Let's say you are faced with many opportunities with a 1 in 10 chance of giving you a return of 1000%. Your expected return is 100%. However, it is entirely possible that you get a return much greater or much lower than this if you repeat it multiple times. This is luck. Just because you keep flipping a coin, does not mean you will get equal numbers of heads and tails.

And don't forget sometimes failure prevents you from having the means to take another risk that could more than make up for previous losses.

Research question of the day: Does attribution bias create or at least stengthen this "luck effect"? It seems like it must.

According to attribution bias, people tend to underestimate the role that random factors play in others' performance. In that case, that would cause initial random factors to persist in people's careers. How many potential hirers are actually smart/crazy/stupid enough to say something like "this person has never managed an advertising budget, but people who graduated from their school with a lower class rank during an up market did a fine job managing an advertising budget."

Hey, Mo!

First, I'm not saying that luck doesn't play a role. What I'm saying is that over the course of a lifetime, a person who chooses to take smart risks, especially while they are young, will appear luckier than most.

I'm also not comfortable with the notion that every risk is modelable as a coin toss. In a career move, for example, there are some skill sets that are transferrable and some that aren't. You have to choose the right time to make the right move. That said, if you have a job you don't like and choose to keep it, I find it hard to say that your fate was sealed by luck.

When the economy slumps, more people tend to go to school, so would there be a higher demand for professors during this time, as more people choose to attain higher degrees?

Jobs in academia tend to pay less than the business world. However, they are more desirable for many. Therefore, would the economics slump hurt those with lower credentials while helping those aspiring to enter teaching positions....or does a higher number of entrants to a school have a negligible impact on academic appointments?

Is the availability of higher paying vs. 'prestige' jobs always/often positively correlated?


Re: The Ethics of Economists - Immigration

It is a peculiar kinds of "ethics" that allows the wealthy to claim the moral high ground while actively working to redistribute income from America's own working poor to the rich. Some might call it "pompous, arrogant preening". Other might describe it as "rank hypocrisy".

The idea that it is "ethical" to make our own poor worse off, because they are better off than foreigners, is nothing better than a crass attack on our own citizens on behalf of (frequently hostile) aliens to whom we owe nothing. The fact that this attack fattens the wallets of the already privileged takes such nonsense into the realm of the disgusting.

Mr. Tabarrok may enjoy his "holier than thou" position on immigration. However, the truth is he would be a closed border fanatic if he and his kind actually had to pay for it. Don't believe me? Would Mr. Tabarrok send his children to a school dominated by illegals and the children of illegals? When pigs fly.

Would Mr. Tabarrok be quite so rhapsodic about Open Borders if his wages were falling for 30 years (see By 40%?

Unless Mr. Tabarrok and his kind are willing to actually pay for their absurd Open Borders ideology, rather than greedily profiting from it, they have nothing legitimate to say on the subject.

Thank you

Peter Schaeffer

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