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Economic Recessions and the Returns to Higher Education

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A recession at the time of high school graduation could place multiple and competing pressures on a student deciding between entering the labor force and going to college. A recession may lower opportunity costs, increasing college enrollment and depressing the college wage premium; a downturn may also restrict enrollment to…

A recession at the time of high school graduation could place multiple and competing pressures on a student deciding between entering the labor force and going to college. A recession may lower opportunity costs, increasing college enrollment and depressing the college wage premium; a downturn may also restrict enrollment to only those with sufficient family resources to pay for it. In the event that either of these illustrations holds true, recessions would seem to result in an adverse, exogenous welfare impact. This paper examines the extent to which recessions at the time of high school graduation affect students' likelihood of enrolling in college and then looks at the long-term earnings effects these early-life recessions carry. I first describe the choice between entering a volatile labor market and enrolling in higher education that faces 18-year-old high school graduates during a recession. For my analysis, I use data from the Panel Study of Income Dynamics to study the effects recessions have on high school graduates' decision-making. I then develop a model using these same data to compare the college wage premiums for individuals treated and untreated by a recession at the time of high school graduation. I find that recessions result in an economically significant uptick in college enrollment. However, the college wage premium for those who enroll in a recession is not statistically different from that witnessed by enrollees in better economic climates. Nonetheless, those young people who enter college during a recession may witness an economically appreciable earnings premium over and above the typical college premium. I conclude by exploring the significance of these findings and reflect on their seemingly contradictory implications.
ContributorsFischer, Brett (Author) / Dillon, Eleanor (Thesis director) / Wiswall, Matthew (Committee member) / Veramendi, Gregory (Committee member) / Barrett, The Honors College (Contributor)
Created2015-05