The Heterogeneous Impacts of Business Cycles on Educational Attainment

Abstract

In this study I examine the impact of fluctuations in the unemployment rate before high school graduation on educational attainment measured 30 years later. I find evidence that educational attainment is countercyclical, as found in other studies, but also find that the impact of the unemployment rate varies across the ability distribution. Using data from the 1979 National Longitudinal Survey of Youth, this analysis identifies individuals who are on the boundary between pursuing and not pursuing additional education. Exposure to a higher unemployment rate at age 17 is associated with higher educational attainment for men in the 60-80th quintile of the ability distribution. There is little to no evidence of an effect beyond this quintile -highlighting the heterogeneous impacts of higher unemployment on educational attainment.

Characterizing the Schooling Cycle

“…We observe that counter-cyclicality takes place only during two periods in our sample, with the longest one taking 2 Previous works have at best estimated a trend component from an assumed equilibrium condition using cointegration or used filtering techniques such as the Hodrick andPrescott (1981,1997) filter (McVicar and Rice, 2001) place during the Great Financial Crisis (GFC). This is in line with the results of existing literature that estimates static average e↵ects for advanced economies (see Johnson, 2013;Reiling and Strom, 2015;Bo↵y-Ramirez, 2017;Alessandrini, 2018). A counter-cyclical pattern suggests that, on average, individuals are substituting away from low job opportunities during economic downturns with longer stays in education.…”

“…This decision has been shown to be largely influenced by the state of the macro economy, i.e., the business cycle. Existing literature's well-rooted consensus is that we should expect a countercyclical behavior in higher education enrollments for developed economies (see Sakellaris and Spilimbergo, 2000;Dellas and Sakellaris, 2003;Johnson, 2013;Reiling and Strom, 2015;Bo↵y-Ramirez, 2017;Alessandrini, 2018). This consensus is based on the estimation of static average e↵ects of standard regressions that do not account for time-variation.…”

“…Countercyclicality in higher education enrollments in OECD countries is a well-established finding in the economics of education literature (see Sakellaris and Spilimbergo, 2000;Dellas and Sakellaris, 2003;Johnson, 2013;Reiling and Strom, 2015;Bo↵y-Ramirez, 2017;Alessandrini, 2018). While these findings are robust, they could potentially tell an incomplete story.…”