Encouraged or Discouraged? The Effect of Adverse Macroeconomic Conditions on School Leaving and Reentry

Existing research generally confirms a countercyclical education enrollment, whereby youths seek shelter in the educational system to avoid hardships in the labor market: the “discouraged worker” thesis. Alternatively, the “encouraged worker” thesis predicts that economic downturns steer individuals away from education because of higher opportunity costs. This study provides a formal test of these opposing theories using data from the United States compared with similar sources from the United Kingdom, Germany, and Sweden. I investigate whether macroeconomic stimuli—including recessions and youth unemployment fluctuations—matter for enrollment decisions. Analyses rely on 10 years of detailed individual-level panel data, consisting of birth cohorts across several decades. Across data sources, results show enrollment persistence in secondary education is stronger in response to economic downturns. These patterns differ sharply for tertiary-enrolled students and those who recently left higher education. Surprisingly, U.S. youths display an increased hazard of school leaving and a decreased hazard of educational reenrollment in response to adverse conditions. In contrast, European youths tend to make enrollment decisions supportive of discouraged-worker mechanisms or insensitivity to adverse conditions. The U.S.-specific encouraged-worker mechanism might be explained by the relative importance of market forces in one’s early career and the high costs of university attendance, which induces risk aversion with regard to educational investment. The discussion addresses the consequences for educational inequality.