Aggregate Unemployment Decreases Individual Returns to Education

Andreas Ammermüller, Anja Kuckulenz and Thomas Zwick
Authors registered in the RePEc Author Service: Andreas Ammermueller

No 06-034, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

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.

Keywords: returns to education; unemployment; regional variation (search for similar items in EconPapers)
JEL-codes: C23 J24 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-edu and nep-hrm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Aggregate unemployment decreases individual returns to education (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:4618

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