The Impact of Economic Conditions During the College-aged Years on Educational Outcomes

Abstract

Every decade between 1970 and 2010 opened with a recession with all decades except the 1990s experiencing a second recession. Young adults are often hardest hit by a recession in terms of job losses. Young adulthood is a critical time to get an education and educational opportunities lost during this period may not be fully made up in subsequent years. In this dissertation, I explore the effects of adverse economic conditions during the traditional college-age years (18-24) on short, medium and long run educational outcomes. This dissertation consist of one theoretical chapter and three empirical essays. In the theoretical chapter, I show the complexity of business cycle effects on college outcomes. The main issue is that opportunity costs move countercyclically while ability-to-pay moves procyclically, thus these two factors counteract each other over the business cycle. Due to the confounding effects of opportunity cost and ability-to-pay, there is a theoretical ambiguity. In the theoretical framework, I outline the conditions under which downturns may improve educational outcomes and the conditions under which downturns may hurt educational outcomes. The ambiguity and complexity displayed in the theoretical framework underlies the importance of an empirical determination. Essay 1 examines whether economic conditions affect college participation among different demographic groups differently. The main or average effect of an economic downturn on enrollment is well studied. However, research on how a downturn affects individuals from different backgrounds is rare. Using a class of logit models that account for interaction effects, I find that individuals who are black or Hispanic and individuals from low education maternal backgrounds are more likely to enroll in college during high unemployment periods compared to individuals from other demographic backgrounds. Essay 2 picks up where essay 1 leaves off by investigating college outcomes for individuals who enrolled during a recession. While many studies consider the enrollment decisions, little evidence exists on whether enrollment is successfully transformed into completed education for recession era enrollees. Employing an innovative competing risk model, I estimate the completion and drop-out probabilities for individuals who enrolled during a downturn. I find that individuals who enrolled in college at 18 and who experience a recession at enrollment, are less likely to complete a 4-year degree by age 24, are more likely to complete a 2-year degree, are more likely to drop out of college and are more likely to experience inactivity. Essay 3 builds upon the negative effects of a recession on college-aged youths found in essay 2. In essay 3, I study educational attainment after individuals have exited their college-aged years. I investigate whether cohorts who experienced adverse economic conditions during young adulthood eventually caught up with their luckier counterparts who experienced more prosperous years. I find that individuals who experience adverse economic conditions during parts of the college-aged years (18-21) experience lower educational attainment than those who experience more prosperous college-aged years and these negative effects are still present up to ten years post college-age.