The Effect of Education on Unemployment Duration

Abstract

This paper investigates the role of education in the job search process of the young unemployed workers. Exploiting the variation in education induced by a reform that caused a dramatic increase in the exposed cohorts’ educational attainment, and using data obtained from administrative unemployment insurance (UI) records, we identify the reduced form impact of education on unemployment duration. We show that high-educated individuals, compared to their low-educated counterparts, stay unemployed longer, and they are less likely to transition into employment before their UI benefit periods expire, suggesting education may be increasing one’s selectiveness over jobs. This difference in unemployment duration between the high- vs. the low-educated diminishes when the jobs are scarce, i.e., during the recessionary periods and in the regions of the country where the unemployment rate is high. In a supplementary analysis, we show that an extension of UI benefit period causes a differential impact on workers’ unemployment duration based on their educational attainment. Particularly, a longer benefit period increases the unemployment durations of the high-educated workers more than the low educated. In addition, a prolonged benefit period increases low-educated unemployed workers’ probability of finding a job, but it has a null effect on the high-educated. Our findings highlight the importance of taking worker characteristics into consideration when designing the UI system.

Keywords: Education, Re-employment, and Unemployment Duration

JEL Classification: I20, I21, I26, J20, J21