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How Education Protects Workers During Recessions

February 24, 2022 by Diether W. Beuermann - Nicolás Bottan - Bridget Hoffmann - Kirabo Jackson - Diego Vera-Cossio Leave a Comment


Education has long been considered a bulwark in hard times. Now new research shows that acquiring additional years of schooling can help prevent people from losing their jobs during economic downturns or recessions.

But what makes acquiring education protective? Does it increase productivity? Does it enable workers to work in recession-proof sectors? Or does the economic background of people that influences the nature of their education contribute to increased job security during crises?

We decided to take a look at education’s shielding effects amid the Covid-19 pandemic, a tragedy that led to widespread unemployment, with tens of millions losing their jobs in Latin America and the Caribbean during 2020.

We looked specifically at Barbados, using administrative data and household surveys to examine the relationship between education and employment during the pandemic. We examined a sample of people who were roughly of the same ability when they applied to secondary school and either just qualified or were narrowly rejected to selective secondary schools on the basis of a national exam. Now they were 29 years old or older, in the labor market, and faced with a severe economic downturn.

The Impact of Selective Schools on Education and Job Loss

Women who scored just above the admission threshold for a more selective school attained on average nearly three years of additional education and were 25 percentage points more likely to obtain a university degree. This additional human capital was protective in the labor market: the women were about 36 percentage points less likely to lose their jobs during the pandemic’s onset. That represented a large advantage, amounting to a 12% lower risk for every year of additional schooling.

In contrast, men who attended a more selective school didn’t attain additional years of education and we didn’t find any protective effect in the labor market for them.

Gains in Workers’ Skills from Education

But why were more educated women better able to hold onto their jobs? More years of education might suggest to a potential employer that a job candidate was capable. Or education might in reality make workers more productive, skilled, and valuable to the firm.

Two features of our study allow us to address this question. First, we study job loss as opposed to hiring decisions or general employment. Unlike hiring decisions, employers can observe workers’ abilities, skills, and productivity when making decisions about layoffs. The literature on employment seems to agree that after three to six years on the job, employees have revealed their abilities. Employers are familiar with a worker’s skills, and education only matters to the extent that it has improved them. With on average nine years of experience at their firms, the people in our sample were far beyond that threshold.

Secondly, our sample includes individuals of roughly the same ability and economic background prior to secondary school. This implies that differences in productivity or skills among those who scored above and below the admissions cutoff were likely due to differences in human capital — i.e. the impact of education. More educated women had a significant advantage in escaping job loss not because of signaling, or assumptions about their abilities based on the school they attended, but because of real gains in skill achieved through education. .

Although the challenges of balancing childcare and work responsibilities were well documented during the pandemic, fertility and childcare had no effect: Women in our sample were equally likely to have children and access to childcare, regardless of their educational level. And women admitted to selective schools hadn’t taken jobs in sectors that were less vulnerable during the pandemic. Our findings were robust: More educated women were able to retain their jobs because their added years of education made them better, more productive workers.

The Importance of Education

Our research contributes to an understanding of the importance of education in boosting worker skills. Much has been written at the IDB and other institutions about the importance of greater investment in education and better educational strategies to raise learning levels in Latin America and the Caribbean to the level of OECD countries. Such efforts are seen as essential to increasing national productivity and growth and raising the living standards of the region’s peoples. Our research demonstrates the causal role that education can play in the labor market. Employers retain their more educated employees during severe economic downturns and recessions, not because of assumptions, but because more educated workers have greater skills, do more productive work, and are of greater value to their companies.


Filed Under: Microeconomics and Competitiveness, Microeconomics and competitiveness, Social Issues, Social Issues Tagged With: #education

Diether W. Beuermann

Diether W. Beuermann is a Lead Economist in the Caribbean Country Department of the Inter-American Development Bank. He has led research and data collection projects in various countries, including Barbados, Colombia, Guyana, Jamaica, Peru, Russia, Suriname, The Bahamas, Democratic Republic of Congo, Trinidad and Tobago, and the United States. His research has covered the effects of different information and communication technologies on agricultural profitability, child labor, academic performance, pre-natal care, and neo-natal health. He has also conducted research on the effectiveness of participatory budgeting, the short- and long-run effects of educational quality, the multidimensional nature of school causal effects, the determinants of school choice, the effectiveness of math-focused parenting programs, the role of remittances as a social insurance mechanism, the effects of early-life weather shocks on short- and long-term human capital accumulation, the effects of public health insurance on health outcomes and labor supply, the effects of behavioral-based entrepreneurship training on firm profitability, the effects of blue-collar crime on financial access and credit prices of affected firms, and whether and how conditional cash transfers may affect the effectiveness of other human capital development policies. He has published in several leading international peer-reviewed journals, including the Review of Economic Studies, American Economic Journal: Applied Economics, Journal of Human Resources, Journal of Health Economics, Journal of Development Economics, and World Development. He holds a B.A. in Business Management and a B.Sc. in Economics from the Universidad de Lima, a M.Sc. in Finance from the University of Durham, and a M.A. and Ph.D. in Economics from the University of Maryland-College Park.

Nicolás Bottan

Nicolas Bottan is an economist and Postdoctoral Associate in the Department of Policy Analysis and Management at Cornell University. His research interests are in Public and Behavioral Economics. He holds a Ph.D. in Economics from the University of Illinois at Urbana-Champaign and Masters in Economics from the University of San Andrés in Argentina. He was a Research Fellow at the IDB Research Department from 2009 to 2011.

Bridget Hoffmann

Bridget Hoffmann is an economist in the Research Department of the Inter-American Development Bank. Her research interests are applied microeconomics, development economics, and environmental economics. She received her Ph.D. in Economics from Northwestern University in 2015. She holds a bachelor’s degree in Financial Economics and Mathematics from the University of Rochester.

Kirabo Jackson

Kirabo Jackson is an American economist who is Professor of Education and Social Policy at Northwestern University, a Fellow at the Institute for Policy Research, and a Faculty Research Fellow at the National Bureau of Economic Research. Co-editor of the American Economic Journal. Elected to the National Academy of Education and was awarded the David N. Kershaw Award and Prize for contributions to the field of public policy analysis and management from the Association for Public Policy Analysis and Management

Diego Vera-Cossio

Diego Vera-Cossio is an economist in the Research Department of the Inter-American Development Bank. His area of interest is development economics. In particular, his research analyzes how different policies help or prevent family businesses from growing in contexts in which access to finance is limited. He is also interested in understanding how different methods of targeting and delivering resources from public programs affect policy effectiveness. Diego, a citizen of Bolivia, received his Ph.D. in Economics from the University of California, San Diego in 2018. He holds a Master’s Degree in Economics from Universidad de Chile and a Bachelor’s Degree in Economics from Universidad Católica Boliviana.

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