Intergenerational Effects of Economic Distress: Paternal Unemployment and Child Secondary Schooling Decisions

Abstract

Economic crises are particularly detrimental if they affect next-generation human capital. This paper investigates how paternal unemployment affects children’s educational attainment, using variation in the local unemployment rate to identify the unemployment effect. To this end, I match German representative household data with labor market information on 97 regions for the years 1998-2009. Paternal unemployment decreases the probability of upper secondary school choice by around 18 percentage points. Further, paternal unemployment has negative effects on measures of child self-confidence, locus of control and mental health. My results indicate that the subjective probability of school success is an important mechanism through which paternal unemployment influences a child’s educational choices. This finding is consistent with a theoretical framework where paternal unemployment affects the return to education through the subjective probability of successful school completion.