Labor market spillover effects of a compulsory schooling reform in Germany

Compulsory schooling reforms are often used to estimate monetary returns to education. Such reforms are unrelated to individual characteristics and preferences and thus arguably able to eliminate selection bias. However, as these reforms affect a large number of individuals in the relevant age groups, they might have spillover effects on individuals not directly affected by the reform. Such spillover effects constitute a problem for identification and estimation of returns to schooling. As they are difficult to address, they are mostly ignored in the empirical literature. I show that the introduction of the compulsory ninth grade in Germany led to a labor supply shock that might have increased wages and employment of individuals who were not directly subject to the reform and were assumed not to be affected in previous research. To investigate in this kinds of spillover effects, I exploit the staggered introduction of the compulsory ninth grade across German federal states in a difference-in-differences approach. Based on large scale register and survey data, I find no evidence for persistent spillover effects for men. For women, however, my results suggest that the labor supply shock resulting from the reform may have led to a persistent increase in employment and wages.