When does education matter? The protective effect of education for cohorts graduating in bad times

Abstract

Using Eurobarometer data, we document large variation across European countries in education gradients in income, self-reported health, life satisfaction, obesity, smoking and drinking. While this variation has been documented previously, the reasons why the effect of education on income, health and health behaviors varies is not well understood. We build on previous literature documenting that cohorts graduating in bad times have lower wages and poorer health for many years after graduation, compared to those graduating in good times. We investigate whether more educated individuals suffer smaller income and health losses as a result of poor labor market conditions upon labor market entry. We confirm that a higher unemployment rate at graduation is associated with lower income, lower life satisfaction, greater obesity, more smoking and drinking later in life. Further, education plays a protective role for these outcomes, especially when unemployment rates are high: the losses associated with poor labor market outcomes are substantially lower for more educated individuals. Variation in unemployment rates upon graduation can potentially explain a large fraction of the variance in gradients across different countries.

Keywords: Education-health gradients; Europe; Unemployment rate.

Figure 1. Education Gradients across Countries by Outcomes

Note: Each dot represents the coefficient of education from a country-level individual regression of outcome on education and basic covariates.

Figure 2. Impact of Education on Outcomes, For Different Levels of Unemployment

Note: Solid lines and dashed lines are predicted outcomes based on the coefficients in Panel A of Table 2.

Figure 3. Non-parametric Estimation - Residuals of Education Gradients against Residuals of Unemployment Rates

Note: Residuals in the y-axis are from regressing gradients for each graduation cohort and country, on linear and square terms of graduation years. The residuals of x-axis are residuals from regressing unemployment rates on linear and square terms of graduation year.