Skill Substitution over the Business Cycle: Evidence from Local Labor Markets

Abstract

Using administrative microdata on German higher education, this paper shows that economic downturns at high school graduation shift skill investment toward more applied options. High school graduates increasingly choose vocationally oriented colleges or apprenticeships over public universities. Survey data reveal that economic preferences moderate these effects: students with college-educated parents are less affected, while low-achieving young men expect higher relative returns to vocational education during recessions. These findings challenge the conventional wisdom of countercyclical college-going and suggest that investments in applied skills serve as an insurance mechanism against labor market uncertainty.

Andreas Leibing

Postdoctoral Researcher

I’m an applied microeconomist with a particular interest in labor economics and the economics of education.