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Aggregate Unemployment Decreases Individual Returns to Education

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  • Ammermüller, Andreas
  • Kuckulenz, Anja
  • Zwick, Thomas

Abstract

On the basis of a theoretical model, we argue that higher aggregate unemployment affects individual returns to education. We therefore include aggregate unemployment and an interaction term between unemployment and the individual education level in a standard Mincer equation. Our results show that an increase in regional unemployment by 1% decreases the returns to education by 0.005 percentage points. This implies that higher skilled employees are better sheltered from labour market changes with respect to their jobs but encounter larger wage changes than less skilled employees. Differences in regional unemployment can in addition almost fully explain the observed large differences in regional returns to education. We use representative individual data and regional panel variation in unemployment between different German regions and for different employee groups. We demonstrate that our results are robust with respect to aggregation bias, time lags and potential endogeneity of the unemployment variable.

Suggested Citation

  • Ammermüller, Andreas & Kuckulenz, Anja & Zwick, Thomas, 2006. "Aggregate Unemployment Decreases Individual Returns to Education," ZEW Discussion Papers 06-034, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  • Handle: RePEc:zbw:zewdip:4618
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    Cited by:

    1. Regina T. Riphahn & Michael Zibrowius, 2015. "Apprenticeship, Vocational Training and Early Labor Market Outcomes - in East and West Germany," CESifo Working Paper Series 5254, CESifo Group Munich.
    2. D. Lederman & W.F. Maloney & J. Messina, 2011. "The Fall of Wage Flexibility," World Bank Other Operational Studies 23575, The World Bank.
    3. Regina T. Riphahn & Michael Zibrowius, 2013. "Apprenticeship Training and Early Labor Market Outcomes in East and West Germany," Working Papers 136, Bavarian Graduate Program in Economics (BGPE).
    4. Henderson, Daniel J. & Polachek, Solomon W. & Wang, Le, 2011. "Heterogeneity in schooling rates of return," Economics of Education Review, Elsevier, vol. 30(6), pages 1202-1214.
    5. Miriam Maeder, 2014. "State-level heterogeneity in returns to secondary schooling in West Germany," Working Papers 147, Bavarian Graduate Program in Economics (BGPE).
    6. Ammermüller, Andreas & Lucifora, Claudio & Origo, Federica & Zwick, Thomas, 2007. "Still searching for the wage curve: evidence from Germany and Italy," ZEW Discussion Papers 07-008, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    7. Lederman, Daniel & Rojas, Diego, 2014. "Export shocks and the volatility of returns to schooling : evidence from twelve Latin American economies," Policy Research Working Paper Series 7144, The World Bank.
    8. Ettore Scappini & Marco Trentini, 2016. "Education and employment in Italy of the cohort of adults born in 1954–1958: an analysis from 1993 to 2009," Quality & Quantity: International Journal of Methodology, Springer, vol. 50(4), pages 1611-1631, July.
    9. Tuomo Suhonen & Jaakko Pehkonen & Hannu Tervo, 2011. "Spatial variation in the development of the return to university education in Finland, 1970-2004," ERSA conference papers ersa10p1351, European Regional Science Association.

    More about this item

    Keywords

    returns to education; unemployment; regional variation;

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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