Characterizing the schooling cycle

Barbara Sadaba*, Sunčica Vujić, Sofia Maier

*Corresponding author for this work

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Abstract

This paper examines the cyclical dynamics of school participation decision, using data for 16-24-year-olds attending full-time post-compulsory education in the UK in the period from 1995Q1 to 2019Q4. We find evidence of a highly persistent education cycle, largely explained by the business cycle. Importantly, the response of school participation to the business cycle is time-dependent – counter-cyclical in the period around the Great Financial Crisis and pro-cyclical in other years. We propose two channels as predictors of the cyclicality of schooling – the ability-to-pay for further education and the opportunity-cost of spending time in education rather than at work. We also show that the results are heterogeneous by gender, with female choices being more responsive to changes in aggregate macroeconomic conditions than male choices. Timely policy interventions using regular education as a counter-cyclical tool can help prevent persistent or permanent unemployment in the aftermath of a crisis.

Original languageEnglish
Article number106649
Number of pages19
JournalEconomic Modelling
Volume132
Issue numberMarch
DOIs
Publication statusPublished - Mar 2024

Bibliographical note

Funding Information:
☆ We thank Diana Alessandrini, Jason Allen, Flavio Cunha, Tatjana Dahlhaus, Gabriela Galassi, Reinhard Ellwanger, Roxana Fernandez Machado, Sandra McNally, Lorenzo Pozzi, Petra Todd, Ben Tomlin, Christopher Rauh, two anonymous reviewers and editor for their many insightful comments and suggestions and conference and seminar participants at the Bank of Canada, St. Francis Xavier University, 7th RCEA Time-series workshop, the 23rd International Conference on Computing in Economics and Finance, the HCEO Faculty Collaborative Seminar 2018 in Guangzhou, the 35th European Economic Association Meeting and the 20th European Economics and Finance Society annual conference for very useful comments. We also thank Gill Wyness for kindly sharing her dataset on tuition fees, student loans and grants with us. The views expressed in this paper are those of the authors. No responsibility for them should be attributed to the Bank of Canada.

Publisher Copyright:
© 2024

Funding

☆ We thank Diana Alessandrini, Jason Allen, Flavio Cunha, Tatjana Dahlhaus, Gabriela Galassi, Reinhard Ellwanger, Roxana Fernandez Machado, Sandra McNally, Lorenzo Pozzi, Petra Todd, Ben Tomlin, Christopher Rauh, two anonymous reviewers and editor for their many insightful comments and suggestions and conference and seminar participants at the Bank of Canada, St. Francis Xavier University, 7th RCEA Time-series workshop, the 23rd International Conference on Computing in Economics and Finance, the HCEO Faculty Collaborative Seminar 2018 in Guangzhou, the 35th European Economic Association Meeting and the 20th European Economics and Finance Society annual conference for very useful comments. We also thank Gill Wyness for kindly sharing her dataset on tuition fees, student loans and grants with us. The views expressed in this paper are those of the authors. No responsibility for them should be attributed to the Bank of Canada.

Keywords

  • Business cycle
  • Human capital
  • Kalman smoother
  • State space

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