Human Capital Investment After the Storm

64 Pages Posted: 19 May 2020 Last revised: 1 Sep 2020

See all articles by Stephen B. Billings

Stephen B. Billings

University of Colorado - Boulder

Emily Gallagher

University of Colorado at Boulder - Department of Finance; Federal Reserve Banks - Federal Reserve Bank of St. Louis

Lowell Ricketts

Federal Reserve Banks - Federal Reserve Bank of St. Louis

Date Written: May 4, 2020

Abstract

We provide a novel test for the impact of wealth-destroying natural disasters on college decisions using Hurricane Harvey (Aug-Sep 2017). First, we compare enrollment and graduation outcomes at Texas public universities and colleges according to their student share from disaster-affected counties. We find a 9.2% decline in enrollment and a 3.5 percentage point (12.5%) drop in graduation rates at the most exposed relative to the least exposed schools. Risk preferences appear to shift after flooding. Enrollment in majors with high downside risk in earnings, like humanities and general studies, decline in favor of lower downside risk majors, like business and engineering. Next, we turn to student loan data on individuals from Houston. If human capital investment is held constant, a loss in home equity should lead to more student loan financing. Instead, we find college-age adults from flooded areas are 2.5 percentage points (5.7%) less likely to have student loans than are counterparts from non-flooded areas. Flooded mortgage-holders with less initial equity in their homes, particularly those located outside of the floodplain, also see relative declines in student loan borrowing – which is suggestive of liquidity effects. We conclude that Hurricane Harvey lead to delayed and/or forgone education, highlighting a potential long-term impact of natural disasters that may require policy solutions beyond existing disaster assistance programs.

Keywords: college, enrollment, completion, education, student debt, constraint, natural disaster, FEMA

JEL Classification: Q54, H84, D0, D1, R2, Q54; H84; D0; D1; R2; D14, H52, H81, J24, I23

Suggested Citation

Billings, Stephen B. and Gallagher, Emily and Ricketts, Lowell, Human Capital Investment After the Storm (May 4, 2020). Available at SSRN: https://ssrn.com/abstract=3592609 or http://dx.doi.org/10.2139/ssrn.3592609

Stephen B. Billings

University of Colorado - Boulder ( email )

Leeds School of Business
Koelbel Building
Boulder, CO US 80309
United States

Emily Gallagher (Contact Author)

University of Colorado at Boulder - Department of Finance ( email )

Campus Box 419
Boulder, CO 80309
United States

Federal Reserve Banks - Federal Reserve Bank of St. Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

Lowell Ricketts

Federal Reserve Banks - Federal Reserve Bank of St. Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

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