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When Does Education Matter? The Protective Effect of Education for Cohorts Graduating in Bad Times

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  • Cutler, David M.
  • Huang, Wei
  • Lleras-Muney, Adriana

Abstract

Using Eurobarometer data, we document large variation across European countries in education gradients in income, self-reported health, life satisfaction, obesity, smoking and drinking. While this variation has been documented previously, the reasons why the effect of education on income, health and health behaviors varies is not well understood. We build on previous literature documenting that cohorts graduating in bad times have lower wages and poorer health for many years after graduation, compared to those graduating in good times. We investigate whether more educated individuals suffer smaller income and health losses as a result of poor labor market conditions upon labor market entry. We confirm that a higher unemployment rate at graduation is associated with lower income, lower life satisfaction, greater obesity, more smoking and drinking later in life. Further, education plays a protective role for these outcomes, especially when unemployment rates are high: the losses associated with poor labor market outcomes are substantially lower for more educated individuals. Variation in unemployment rates upon graduation can potentially explain a large fraction of the variance in gradients across different countries.

Suggested Citation

  • Cutler, David M. & Huang, Wei & Lleras-Muney, Adriana, 2014. "When Does Education Matter? The Protective Effect of Education for Cohorts Graduating in Bad Times," Scholarly Articles 13479095, Harvard University Department of Economics.
  • Handle: RePEc:hrv:faseco:13479095
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    JEL classification:

    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • I20 - Health, Education, and Welfare - - Education - - - General
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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