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Unequal effects of the economic cycle on human capital investment. Evidence from Italian panel data

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  • Bonacini, Luca

Abstract

Human Capital Theory considers individuals' education as an investment in terms of money, time, effort, and the renouncement of income opportunities that they expect will be compensated during their working life. While these benefits are mainly in the long run, direct and indirect costs are conditioned by the present circumstances, and in particular, by the macroeconomic conditions. The literature investigating the influence of the business cycle on enrolment decisions often suggests a counter-cyclical relationship without considering that economic fluctuations can produce heterogeneous effects among households facing different economic situations. Through a fixed effects regression based on panel data from the Italian component of the EU-SILC survey, I find the existence of a counter-cyclical propensity to enrol that is symmetric to the stages of the economic cycle. However, after disaggregating the analysis by household income quartiles, results show that a 1% increase in GDP reduces the probability of the poorest individuals being enrolled in non-compulsory education by 1.2%, while the wealthier portion of the population shows an a-cyclical relationship. The policy implications of these results are particularly important as they suggest that measures directed towards youths from poorer households to promote their enrolment in non-compulsory education should be strengthened when economic conditions improve.

Suggested Citation

  • Bonacini, Luca, 2020. "Unequal effects of the economic cycle on human capital investment. Evidence from Italian panel data," GLO Discussion Paper Series 733, Global Labor Organization (GLO).
  • Handle: RePEc:zbw:glodps:733
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    Cited by:

    1. Bonacini, Luca & Gallo, Giovanni & Scicchitano, Sergio, 2021. "Sometimes you cannot make it on your own. How household background influences chances of success in Italy," GLO Discussion Paper Series 832, Global Labor Organization (GLO).

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    More about this item

    Keywords

    Economic cycle; Educational economics; Human capital; Rate of return;
    All these keywords.

    JEL classification:

    • A22 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - Undergraduate
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • I23 - Health, Education, and Welfare - - Education - - - Higher Education; Research Institutions
    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality

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