Download this Paper Open PDF in Browser

Aggregate Unemployment Decreases Individual Returns to Education

41 Pages Posted: 30 May 2006 Last revised: 26 Aug 2008

Andreas Ammermueller

Federal Ministry of Labour and Social Affairs

Anja Kuckulenz

Center for European Economic Research (ZEW)

Thomas Zwick

University of Wuerzburg - Business Administration & Economics; Centre for European Economic Research (ZEW); Maastricht University - Research Centre for Education and the Labour Market (ROA)

Date Written: April 20, 2006

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

JEL Classification: C23, J24

Suggested Citation

Ammermueller, Andreas and Kuckulenz, Anja and Zwick, Thomas, Aggregate Unemployment Decreases Individual Returns to Education (April 20, 2006). ZEW - Centre for European Economic Research Discussion Paper No. 06-034. Available at SSRN: https://ssrn.com/abstract=905099 or http://dx.doi.org/10.2139/ssrn.905099

Andreas Ammermueller (Contact Author)

Federal Ministry of Labour and Social Affairs ( email )

Berlin, 11017
Germany

Anja Kuckulenz

Center for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
L 7,1 D-68161 Mannheim
Germany

Thomas Zwick

University of Wuerzburg - Business Administration & Economics ( email )

Sanderring 2
Wuerzburg, D-97070
Germany

Centre for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
L 7,1 D-68161 Mannheim
Germany

Maastricht University - Research Centre for Education and the Labour Market (ROA) ( email )

P.O. Box 616
Maastricht, MD6200
Netherlands

Paper statistics

Downloads
49
Abstract Views
500