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.