Skill Substitution, Expectations, and the Business Cycle

Abstract

This paper studies how business-cycle conditions around high school graduation affect postsecondary skill investment. Using administrative data on more than six million German graduates from 1995-2018, I document procyclical university enrollment. Higher unemployment rates reduce enrollment at academically oriented universities and shift students toward vocational colleges and apprenticeships. Decomposing unemployment into national and state-specific components and combining administrative and survey evidence, I find that national downturns lower expected returns to academic education. In contrast, more local shocks affect vocational outside options. Enrollment effects concentrate at traditional universities, persist into attainment, and exhibit a structural break in the mid-2000s.

Andreas Leibing

Postdoctoral Researcher

I’m an applied microeconomist with a particular interest in labor economics and the economics of education.