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

Abstract

This paper studies the cyclicality of general vs. specific skill investments. Using administrative data on higher education and the German apprenticeship market between 1998 and 2018, I show that local labor market shocks at high school graduation reduce college attainment. Risk-averse and patient students remain in general skill tracks, while others shift toward vocational education. Low-achieving young men increase their expected relative returns to vocational education, whereas high-SES students shift toward general skills. These findings contrast the conventional wisdom of countercyclical college-going when specific skills serve as an outside option and highlight how economic shocks reinforce inequality.

Andreas Leibing

Postdoctoral Researcher

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