The lasting health impact of leaving school in a bad economy

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The lasting health impact of leaving school in a bad economy.

Abstract

This paper investigates whether leaving school in a bad economy deteriorates health in the long-run. It focuses on individuals in England and Wales who left full-time education in their last year of compulsory schooling immediately after the 1973 oil crisis. Unemployment rates sharply increased in the wake of the 1973 oil crisis, so that between 1974 and 1976, each school cohort faced worse economic conditions at labour-market entry than the previous one. Our identifi-cation strategy relies on the comparison of very similar pupils – born the same year and with a similar quantity of education (in months) – whose school-leaving behaviour in different eco-nomic conditions was exogeneouly implied by compulsory schooling laws. Unlike school-leavers who did postpone their entry on the labour market during the 1980s and 1990s recessions, we provide evidence that pupils’ decisions to leave school at compulsory age immediately af-ter the 1973 oil crisis were not endogeneous to the contemporaneous economic conditions at labour market entry. We use a repeated cross section of individuals over 1983-2001 from the General Household Survey (GHS) and take a lifecourse perspective, from 7 to 26 years after school-leaving. Our results show that poor economic conditions at labour-market entry are particularly damaging to women’s health. Women who left school in a bad economy are more likely to report poorer health and to consult a general practitioner over the whole period under study (1983-2001). Additional evidence suggests that they are also more likely to suffer from a longstanding illness/disability over the whole period. As for men, the health impact of poor economic conditions at labour-market entry is more mixed, and not robust across all specifica-tions. However, we never find that leaving school in a bad economy is beneficial to their health. Finally, our results show that leaving school in a bad economy does not have a lasting impact on labour-market outcomes from 7 to 26 years after school-leaving, neither for men, nor for women.

Introduction

“Chaque tournant torpide de ce monde engendre des enfants déshérités auxquels rien de ce qui n’a été, ni de ce qui sera, n’appartient.” Rainer Maria Rilke, Septième Élégie de Duino.
Recent studies in health economics show that socioeconomic circumstances during infancy and early-childhood years have a bearing on health outcomes and mortality later in life (Al-mond, 2006; Kesternich et al., 2014; Lindeboom et al., 2010; Van den Berg et al., 2006). There is indeed growing evidence there are critical periods for health – in utero and early infancy, but also during childhood and young adulthood (WHO, 2000). This paper investigates whether leaving full-time education in a bad economy is such a critical period for health, i.e. whether it is detrimental to health in the long-run. This is an important question from a policy per-spective, as the youth has suffered disproportionately during the Great Recession (Bell and Blanchflower, 2011). Young cohorts who left full-time education in the late 2000s faced his-torically high unemployment rates. To the extent that leaving school in a bad economy has a lasting and negative impact on health, this situation will most likely generate important health disparities in the future.
There are some reasons to believe that poor economic conditions at school-leaving1 lead to lower health in the long-run. First, higher unemployment rates at school-leaving may lead to greater stress and trigger addictive behaviours or mental disorders in the short-run. There is indeed evidence that individuals at a high risk of unemployment are more likely to adopt risky health behaviours and suffer more from depressive symptoms in bad times (Dee, 2001; Dave and Kelly, 2012; Charles and DeCicca, 2008).2 As a result, health may fall immediately after school-leaving. If this initial decrease in health is not compensated over the lifecourse, it will generate lasting health disparities between individuals who left school in a bad economy and their luckier counterparts. A second empirical pattern motivating this study has to do with the fact that poor economic conditions at labour-market entry lead to persistent and negative career effects. Recent evidence in labour economics indeed shows that those who graduate in bad economies suffer from underemployment and are more likely to experience job mismatching since they have fewer jobs from which to choose (Kahn, 2010). For instance, graduating from college in a recession has a large, negative and persistent effect on men’s wages in the USA and Canada (Kahn, 2010; Oreopoulos et al., 2012).3 Poor economic conditions at labour-market entry also have adverse effects on men’s probability of being employed, especially among the low-educated – although this negative effect generally fades out over the next few years (Genda et al., 2010; Stevens, 2007; Gaini et al., 2012). Workers who enter firms in economic down-turns may initially be placed in lower-level jobs with less important tasks and less promotions (Gibbons and Waldman, 2006), so that graduating in a recession may have negative effects on various dimensions of job quality e.g. job stress, perceived job security, working hours, career prospects or more generally working conditions.4 Overall, there is evidence that adverse eco-nomic conditions at graduation have negative consequences on labour-market outcomes – with highly-skilled workers and individuals with a strong attachment to the labour force suffering from larger penalties. As there is both theoretical and empirical evidence that career outcomes are linked to health, one may expect that leaving school in a bad economy has a negative and lasting impact on health through the cumulative impact of these worse career outcomes. In-come is indeed generally thought to improve health (Duleep, 1986; Grossman, 1972; Currie, 2009; Gardner and Oswald, 2007), job loss is associated with lower health, adverse health be-haviours and higher mortality rates (Sullivan and Von Wachter, 2009; Deb et al., 2011; Salm, 2009; Browning and Heinesen, 2012; Eliason and Storrie, 2009a), while other job dimensions – such as job stress, perceived job insecurity, long working hours, harmful working conditions, downward occupational mobility – have been shown to deteriorate health (Fischer and Sousa- and health behaviours being countercyclical, at least in the short-run (Buchmueller et al., 2007; Gerdtham and Ruhm, 2006; Neumayer, 2004; Ruhm, 2000, 2003, 2004, 2005). In contrast, recent researchers’ findings show that the impact of contemporaneous macroeconomic conditions is highly heterogeneous across worker’s ex-ante employment probabilities.
Poza, 2009b; Fletcher et al., 2011; Caroli and Godard, 2014; Llena-Nozal, 2009; Robone et al., 2011). Overall, these three empirical patterns make a strong case for the study of the long-term health consequences of leaving school in a bad economy.
In this paper, we examine the impact of leaving full-time education in a bad economy on middle and long-term health in England and Wales. We focus on individuals who left full-time education in their last year of compulsory schooling after the 1973 oil crisis. The proportion of pupils who left full-time education at compulsory age in the 1970s was remarkably high in the UK – 50 percent, according to Micklewright et al. (1989). Our identification strategy builds on two sources. First, it relies on the comparison of very similar individuals – born the same year and with a similar quantity of schooling (in months) – whose school-leaving behaviour in different economic conditions was exogeneously induced by compulsory schooling laws. More specifically, within a same birth cohort, pupils born at the end of the calendar year (September to December) were forced to leave school almost a year later than pupils born earlier in the year (January to August). Second, it exploits the sharp increase in unemployment rates generated by the 1973 oil crisis. Between 1974 and 1976, each school cohort indeed faced worse economic conditions at labour-market entry than the previous one.5 As a consequence, unlucky pupils born in September-December faced higher unemployment rates at labour-market entry than pupils born in January-August of the same calendar year.
Of course, a potential selection issue has to do with the fact that pupils’ decisions to leave school at compulsory age may be endogeneous to the contemporaneous economic conditions at labour-market entry. Prior research has indeed linked schooling choice to decreased labour-market opportunities (Gustman and Steinmeier, 1981; Card and Lemieux, 2001; Betts and McFarland, 1995) and shows that individuals tend to remain in school during economic downturns. We show, however, that this is not the case in our setup. Unlike school-leavers who did postpone their entry on the labour market during the 1980s and 1990s recessions, pupils’ decisions to leave school at compulsory age between 1974 and 1976 were not endogeneous to the contem-poraneous economic conditions at labour-market entry. We argue that the 1973 oil crisis was highly unexpected and that pupils who were in their last year of schooling at that time did not anticipate the adverse career effects of leaving school when unemployment rates were high.
5 We focus on pupils who left school at compulsory age between 1974 and Easter 1976 – e.g. the 1958 and 1959 birth cohorts. We do not consider older individuals so as to abstract from the effect of the increase in school-leaving age from 15 to 16 from September 1972 on. In our setup, all individuals are affected by the 1972 reform, so that our identification strategy does not rely on the comparison on pre-reform cohorts and post-reform cohorts.
We use a repeated cross section of individuals over 1983-2001 from the General Household Survey (GHS) and take a lifecourse perspective6 , from 7 to 26 years after school-leaving. We investigate the middle to long-term impact of leaving school in a bad economy on health status, health care and health behaviours. We examine the potential labour-market mechanisms by which adverse economic conditions at school-leaving may affect later health. Our results show that poor economic conditions at labour-market entry are particularly damaging to women’s health. Women are more likely to report poorer health and have a higher probability of con-sulting a general practitioner over the whole period (1983-2001). Additional results suggest that they have a higher propensity to suffer from a longstanding illness or disability. As for men, the health impact of poor economic conditions at labour-market entry is more mixed, and not robust across all specifications. Depending of the specification used, our effects range from health-damaging effects to insignificant ones. However, we never find a positive health effect of poor economic conditions at labour-market entry on men’s health. Finally, we find that leaving school in a bad economy does not have a lasting impact on labour-market outcomes from 7 to 26 years after school-leaving, neither for men, nor for women.
This paper relates to several strands of literature. First and foremost, it contributes to the emerging literature investigating the long-term health consequences of graduating in a bad economy. To our knowledge, only a very limited number of studies (Maclean, 2013; Hessel and Avendano, 2013; Cutler et al., 2015) have addressed this question. So far, results turn out to be mixed. Maclean (2013) uses US data – the National Longitudinal Survey of Youth 79 (NLSY79) – and exploits the variation in school-leaving state unemployment rates to identify the effect of leaving school in a bad economy on health at age 40. Members of her sample left school between 1976 and 1992. As time or location of school-leaving may be endogeneous to the contemporaneous unemployment rate, she uses instrumental-variable (IV) methods to deal with selection problems related to what she refers to as “endogeneous sorting”. She finds that men who left school when the state unemployment rate was high have a higher probability to report poor or fair health as well as depressive symptoms and have lower physical functioning at age 40. Surprisingly, she finds that women leaving school in a bad economy tend to have fewer depressive symptoms at age 40. Hessel and Avendano (2013) use European data, namely the Survey of Health, Ageing and Retirement in Europe (SHARE). They consider individuals aged 50 and over who left school from 1957 onward. They use country-specific unemployment rates and trend deviations based on the reported year of leaving full-time education. According to their results, poor conditions at school-leaving predict worse health status among women and better health status among men. They provide evidence that highly-educated women are particularly affected. However, the authors acknowledge that both selection into higher educa-tion and causation mechanisms may explain this association. Finally, Cutler et al. (2015) use the Eurobarometer data and consider economic fluctuations over 50 years across 31 countries. They show that higher unemployment rates at graduation are associated with lower income, lower life satisfaction, greater obesity, more smoking and drinking later in life, for both men and women. According to their results, education seems to play a protective role, especially when unemployment rates are high. In a series of recent papers Maclean (2014c,a,b) specifically tests whether leaving school in an economic downturn persistently affects drinking behaviour, body weight and the probability of access to an employer-sponsored health insurance. She uses the same methodology and data as in Maclean (2013) and finds that men, but not women, who leave school in a bad economy consume more drinks and are more likely to report heavy and binge drinking than otherwise similar men. Unlucky men have lower bodyweight and are less likely to be overweight and obese at age 40. Finally, she finds that both men and women are less likely to have access to an employer-sponsored health insurance up to 18 years after school-leaving.
Overall, the evidence provided by the literature is rather mixed. Of course, differences in the age groups considered may account for these conflicting results. Differences in terms of labour markets, social security schemes and social policies between the US and Europe may also play a role. In spite of this, additional evidence is needed to understand the long-term health conse-quences of leaving school in a bad economy – and particularly its heterogeneous impact across gender.
Our paper contributes to the existing literature in several ways. First, our identification strategy is different in spirit from the ones previously used in the literature. Rather than con-sidering long periods of economic fluctuations and exploiting the variation in country (or state) school-leaving unemployment rates, we focus on two birth cohorts only – the 1958 and 1959 cohorts. Our strategy relies on the comparison of similar individuals – born the same year and with a similar quantity of education – whose school-leaving behaviour in different eco-nomic conditions was exogeneously induced by compulsory schooling laws. As a consequence, our results cannot possibly be biased by country-specific (or state-specific) cohort effects. Sec-ond, we show that pupils’ decisions to leave school at compulsory age between 1974 and 1976 were not endogeneous to the contemporaneous economic conditions at labour-market entry – unlike school-leavers during the 1980s and 1990s recessions. There is no need, then, to deal with problems related to endogeneous sorting of school-leaving and our results do not rely on the usual assumptions when implementing instrumental-variables models. Third, our data al-low us to adopt a lifecourse perspective, which is only present in the paper by Cutler et al. (2015). Finally, we focus on low-educated individuals. There are some good reasons to focus on pupils leaving school at compulsory age : first, they represent a sizeable proportion of pupils in England and Wales in the mid-70s (approximately 50%). Second, whether they should be more affected than highly-educated individuals by high unemployment rates at labour-market entry – i.e. whether education plays a protective role – remains an open question. On the one hand, economic theory predicts less persistence of poor economic conditions at school-leaving for low-skilled workers and those with weak attachment to the labour force. On the other hand, education has been hypothesised to increase one’s ability to cope with negative shocks and uncertainty (Cutler et al., 2015; Cutler and Lleras-Muney, 2006; Smith, 2004). If, according to Cutler et al. (2015), education does play a protective role, leaving school at compulsory age in a bad economy will act as a double whammy. Individuals who leave school early typically have worse health statuses, and more rapidly declining health statuses over the lifecourse than higher-educated ones. If they are disproportionately affected by poor economic conditions at labour-market entry, this will further exacerbate health disparities among education groups. In this context, investigating the long-term health impact of leaving school in a bad economy among low-educated individuals seems crucial.

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Table of contents :

General Introduction 
1 The lasting health impact of leaving school in a bad economy
1.1 Introduction
1.2 An economic model
1.3 Institutional framework
1.3.1 Compulsory schooling in England and Wales
1.3.2 Unemployment rates
1.4 Empirical approach
1.4.1 Identification strategy and model
1.4.2 Validity of the identification strategy
1.4.3 A differences-in-differences approach
1.5 Results
1.5.1 The impact of leaving school in a bad economy on health
1.5.2 The impact of leaving school on labour-market outcomes
1.5.3 Robustness Checks
1.6 Conclusion
A-1.1. Tables and Figures
A-1.2. Data Appendix : Sample and variable construction
A-1.3. School leaving age legislation in England and Wales
2 Gaining weight through retirement? Results from the SHARE survey
2.1. Introduction
2.2. Empirical approach
2.3. Data
2.1. Presentation of the sample
2.2. Variables
2.4. Results
2.1. Determinants of retirement
2.2. The impact of retirement on BMI, overweight and obesity
2.3. Heterogeneous effects of retirement
2.4. Underlying mechanisms
2.5. Robustness checks
2.5. Conclusion
A-2.1. Estimating Outcome Distributions for Compliers in Instrumental Variables
(IV) Models
3 Does job insecurity deteriorate health? 
3.1. Introduction
3.2. Empirical Specification
3.3. Data
3.1. Presentation of the sample
3.2. Variables
3.3. Instrument
3.4. Descriptive statistics
3.4. Results
3.1. Probit estimates
3.2. IV estimates
3.3. Robustness checks
3.5. Conclusion
A-3.1. Tables
General Conclusion
Bibliography

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