Purpose: This study examined the effects of economic downturns at the time of graduation on short-term and long-term mental health of graduates. Methods: Using a large longitudinal dataset whose respondents graduated from their highest level of education between 2001 and 2018 in Australia, the study investigated the effects of initial labor market conditions on psychological distress measures, quality-of-life mental health scales, and diagnoses of depression or anxiety since graduation. Results: Evidence suggests the presence of a scarring effect of graduating during a recession on the mental health of young adults, particularly significant and persistent for men. Higher unemployment rates at graduation were associated with increased risks of high psychological distress and diagnoses of depression or anxiety, and lower levels of social functioning and mental well-being among men lasting over a decade. The psychological effect was largely driven by young adults with vocational or secondary qualifications or receiving no government allowance at graduation. Conclusions: Policies should consider the psychological effect of graduating during recessions and focus particularly on vulnerable groups who are susceptible to adverse labor market conditions, such as graduates who are in cyclically sensitive occupations and have less or no work benefits and social protection. © 2020 Elsevier Inc.
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