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On the cyclicality of education

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There is ample evidence that college enrollment is higher during recessions (e.g. Dellas and Sakellaris, 2003). This is consistent with economic theory: during a recession the opportunity cost (forgone wages) of going to school is lower, as the alternative to schooling might well be unemployment. The same is true of on-the-job training: during a recession, workers who would otherwise be idle can be trained at a lower cost than during a boom, when they could have to stop working (and sacrifice production) to receive training.

This countercyclical pattern is unlikely to hold if would-be students face significant credit constraints. This is the main result of Sakellaris and Spilimbergo (2000), who focus on foreign students who go to the United States to attend university. For richer countries, they find countercyclicality, as expected. However, for students coming from poorer countries, there is in fact procyclicality, because of their inability to pay or borrow during a recession.

Another aspect that merits consideration is the effect of graduating during a recession. While it is obvious that employment opportunities are more limited in these circumstances, a less well-known (but perhaps more worrying) finding is that this can have serious long-term career effects.

Oreopoulos, von Wachter and Heisz (2012) show that graduating during a recession initially leads the graduates to start working in less attractive jobs than they normally would. As economics conditions improve, workers move to higher-paying firms and jobs. However, this tendency is much more pronounced among high-ability workers. The less-advantaged have more difficulty moving away from the low-paying firms, so that they recover much more slowly (if at all) from the shock.

Finally, we could look at cyclicality in government spending on education. Afonso and Tovar Jalles (2013) do this for a large sample of developed and developing countries and find no significant effect of the business cycle on government spending on education (unlike spending on social security and welfare). This result suggests that education systems may become strained during recessions, when there is higher demand but no response from the supply side.

Diogo

References

Afonso, António and João Tovar Jalles, “The cyclicality of education, health, and social security government spending,” Applied Economics Letters, 2013, 20 (7), 669–672.
Dellas, Harris and Plutarchos Sakellaris, “On the cyclicality of schooling: theory and evidence,” Oxford Economic Papers, 2003, 55 (1), 148–172.
Oreopoulos, Philip, Till von Wachter, and Andrew Heisz, “The short- and long-term career effects of graduating in a recession,” American Economic Journal: Applied Economics, September 2012, 4 (1), 1–29.
Sakellaris, Plutarchos and Antonio Spilimbergo, “Business cycles and investment in human capital: international evidence on higher education,” Carnegie-Rochester Conference Series on Public Policy, 2000, 52, 221–256.

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Author: studentnovasbe

Master student in Nova Sbe

One thought on “On the cyclicality of education

  1. I really like the notion you put forward that the government should cycle educational funding according to current economics. However, I fear if the impact maybe a whimsical approach (as is so evident in our govt) rather than a well-balanced, well-though policy.