The impact of local labour market conditions on school leaving decisions

We use data from the British Household Panel Survey and Labour Force Survey to analyse the relationship between the demand for post compulsory education and prevailing labour market conditions in Britain. We explicitly incorporate the role of family resources by allowing effects to differ between young people whose families are home owners and those whose families are tenants. We find evidence that local labour markets significantly influence school leaving decisions of 16 year olds living in tenant households, specifically in social housing. For these groups, an increase in the local youth unemployment rates positively affects school enrolment – consistent with opportunity cost arguments – while high levels of adult unemployment discourage it. Labour markets do not significantly affect school leaving decisions of students from better off families. Our results suggest that factors associated with the family socio economic status, such us parental tastes for education and social norms, outweigh economic considerations among students from higher socio economic backgrounds, who tend to enrol in higher education irrespectively of labour markets conditions.