Human Capital Adjustments and Labor Market Resilience: Evidence From Linked Education and Earnings Data (Poster 25)

• In Event: AERA Promising Scholarship in Education Research: Dissertation Fellows and Their Research

Abstract

"Negative labor demand shocks can have lasting consequences on the labor market outcomes of both prime-aged workers and new labor market entrants, known as “scarring effects.” However, individuals coming of age may not suffer the same fate if they internalize salient changes to the returns to education and adjust their human capital investments. This paper studies the effects of exposure to negative labor demand shocks during youth and adolescence on human capital accumulation and later-life earnings. I use student-level administrative data from Texas and a modified difference-in-differences design that compares changes in outcomes across cohorts of students living in areas that were more or less exposed to Chinese import competition. Students exposed to larger shocks were 4% more likely to enroll in college and 8% more likely to earn a bachelor’s degree. I provide evidence that these adjustments, along
with shifts of fields of study away from those directly exposed to import competition in both high school and college, shielded students from 90% of the shock’s scarring effects on later-life earnings. My results contribute a silver lining to the gloomy findings of prior work on the long-term effects of “the China shock” and other negative labor demand shocks: if individuals coming of age sufficiently adjust their human capital investments, they can emerge relatively unscathed."

Author

• Tucker Smith, Vanderbilt University