How talent reacts to crises - The rationality of high-ability graduates’ response to the financial crisis 2008/09

Bernd Frick () and Fabian Lensing ()
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Bernd Frick: University of Paderborn
Fabian Lensing: University of Paderborn

No 85, Working Papers Dissertations from Paderborn University, Faculty of Business Administration and Economics

Abstract: The 2008/09 financial crisis had a severe impact on the World’s economies and societies. In order to prevent large-scale layoffs, many governments implemented specifically designed labor market policies. However, students graduating during the crisis faced particularly poor labor market conditions as the majority of these policies addressed already existing jobs. Given these circumstances, rational choice theory suggests that individuals adapt their behavior accordingly. Using a unique dataset with detailed information on 27,813 German high-ability students, we find – in line with rational choice theory – a massive increase in the percentage of graduates pursuing a Ph.D. during the crisis. The choice of other potential reactions (to defer graduation, to take a short-term/part-time job or to take a full-time job below one’s aspirations) remains unaffected by the crisis. Controlling for socio-demographic factors, we find that the likelihood to pursue a Ph.D. increases by 18-21% points when graduating during the crisis. In the first year after the crisis, the share of students pursing a Ph.D. decreases again – a consistent pattern across the three majors we consider in our analysis (business & economics, engineering, and law). Data reflecting the changes in behavior of the overall German student population confirm this pattern, but effect sizes appear to be much smaller. Thus, we see rational choice theory confirmed when looking at the behavior of German high-ability students graduating during the financial crisis 2008/09.

Keywords: Labor Economics; High-ability Students; Rational Choice Theory; Financial Crisis; Individual Behavior (search for similar items in EconPapers)
JEL-codes: I23 J24 (search for similar items in EconPapers)
Pages: 33
Date: 2022-01
New Economics Papers: this item is included in nep-lma
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