Transitory Earnings Opportunities and Educational Scarring of Men

Sigurdsson, Jósef

No 19066, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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.

Keywords: Educational attainment; Labor supply; Tax reform (search for similar items in EconPapers)
JEL-codes: H24 I21 I26 J16 J24 (search for similar items in EconPapers)
Date: 2024-05
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