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Transitory Earnings Opportunities and Educational Scarring of Men

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  • Sigurdsson, Jósef

Abstract

I study how transitory increases in the opportunity cost of schooling affect dropout rates and long-run outcomes. Exploiting a tax-free year in Iceland and comparing teenagers around compulsory schooling age, I find increased school dropout and a permanent loss in educational attainment for men, but not women. Consequently, men suffer substantial losses in lifetime earnings, slow career progression, and reduced marriage and fertility outcomes. Dropouts predominantly come from low-education neighborhoods and enter jobs with limited career prospects, consistent with misperceptions about the returns to education. I discuss the implications for the cost of business cycles, education policy, and age-dependent taxation.

Suggested Citation

  • Sigurdsson, Jósef, 2024. "Transitory Earnings Opportunities and Educational Scarring of Men," CEPR Discussion Papers 19066, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:19066
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    More about this item

    Keywords

    Educational attainment; Labor supply; Tax reform;
    All these keywords.

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • I26 - Health, Education, and Welfare - - Education - - - Returns to Education
    • J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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