Economic shocks and their effect on the schooling and labor participation of youth: evidence from the metal mining price boom in Chilean counties

Abstract

We analyze the effect of an exogenous economic shock on youth, specifically their incentive for preferring to participate in the labor market over continuing their education. We examine the Chilean case and the sustained increase in the market price of the minerals extracted there during the period of Metal Mining Price Boom between the years 2003 and 2011. Chile is a large-scale producer of metals, being the world's largest producer of copper and the third largest producer of molybdenum. The prices of such metals increased steadily during the shock, what boosted the economic growth and the demand for labor. This shock altered the skill composition in the labor market, increasing the jobs for low-and medium-low-skilled workers in the counties more exposed to the shock, thus being the metal mining counties the most affected by its impact. According to this, our results show a negative impact of the shock on returns to schooling that simultaneously reduced school enrollment rates while increasing youth labor participation in those counties.

Digging Deep: Resource Exploitation and Higher Education

“…In particular, the authors show that during the recent commodity price boom, enrollment rates of people aged 17-20 decrease in municipalities with high local labor market exposure to this sector while employment rates increase for the same cohort. Similarly, Trujillo and Puello (2021) show that this commodity price boom led to lower returns to schooling, decreasing municipalitylevel enrollment rates of young individuals (aged 15-24), and increasing their labor market participation.…”

Youth unemployment during economic shocks: Evidence from the metal-mining prices super cycle in Chile

“…To date, empirical literature that analyzes the impacts of exogenous economic shocks has mostly focused on the opportunity costs between schooling and participating in the labor market, and typically within the context of economic crisis (Goldin, 1999;Schady, 2004;Pérez-Trujillo and Rodríguez-Puello, 2021). The results of these studies are ambiguous.…”

“…The salary boom also had an impact in terms of its distribution between skilled and unskilled workers in the areas more exposed to the shock (Pérez-Trujillo and Rodríguez-Puello, 2021). Pellandra (2015), who analyzes the impact of the MMPSC shock on local wages and employment levels for the Chilean provinces during the expansion phase (2003)(2004)(2005)(2006)(2007)(2008)(2009)(2010)(2011) found that those provinces more exposed to the shock experienced an increase in the wages of low-skilled workers.…”

“…We analyze the period from 2000 to 2017 using the information from the 2000, 2006, 2011, 2013, 2015CASEN surveys. Following Álvarez et al (2021 and Pérez-Trujillo and Rodríguez-Puello (2021), the empirical analysis is carried out at a municipality level, allowing us to identify changes that occurred during and after the MMPSC. This also allows us to create unbalanced panel data for the period.…”

“…The classical theory of human capital predicts that an increase in wages of low-skilled labor relative to that of high-skilled labor (a decrease in the wage premium for education), will cause individuals to acquire less schooling (Becker, 1964;Black et al, 2005). The expansion phase of the MMPSC in Chile is illustrative of this same causal mechanism, resulting in declining school enrollment due to the high opportunity cost between continuing education or joining the labor force (Pérez-Trujillo and Rodríguez-Puello, 2021). The decrease in school enrollment during the expansion phase in Chile resulted in dropouts once the shock ended, being the low-skilled workers those less likely to maintain their employment during the contraction (International Labor Office, 2018).…”