The effects of the Great Depression on educational attainment
ABSTRACT This paper examines the relationship between the Great Depression and the educational attainment of young adults in the 1930s, taking advantage of the state-level variation in employment as individuals were turning a critical age. In general, there were negligible effects of the Great Depression's severity on average years of schooling beyond the cohort and state-specific effects. Regional differences in availability of appropriate schools seem to matter for the substitution effect to operate to increase the years of schooling during the recession. Furthermore, at the top end of educational attainment, the income effect seems to outweigh the substitution effect as the severity of the Great Depression is associated with a large drop in white male's college attendance. In sum, the Great Depression may have increased the average educational attainment, but the net effects seem small. More importantly, it appears to have compressed the distribution of educational attainment among white males.
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ABSTRACT: The interrelation among race, schooling, and labor market opportunities of American blacks can help us make sense of the relatively poor economic status of blacks in contemporary society. The role of these factors in slavery and the economic consequences for blacks has received much attention, but the post-slave experience of blacks in the American economy has been less studied. To deepen our understanding of that experience, Robert A. Margo mines a wealth of newly available census data and school district records. By analyzing evidence concerning occupational discrimination, educational expenditures, taxation, and teachers' salaries, he clarifies the costs for blacks of post-slave segregation. "A concise, lucid account of the bases of racial inequality in the South between Reconstruction and the Civil Rights era. . . . Deserves the careful attention of anyone concerned with historical and contemporary race stratification."âKathryn M. Neckerman, Contemporary Sociology "Margo has produced an excellent study, which can serve as a model for aspiring cliometricians. To describe it as 'required reading' would fail to indicate just how important, indeed indispensable, the book will be to scholars interested in racial economic differences, past or present."âRobert Higgs, Journal of Economic Literature "Margo shows that history is important in understanding present domestic problems; his study has significant implications for understanding post-1950s black economic development."âJoe M. Richardson, Journal of American HistoryBibliovault OAI Repository, the University of Chicago Press. 01/1992;
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ABSTRACT: During 1930-33, the U.S. financial system experienced conditions that were among the most difficult and chaotic in its history. Waves of bank failures culminated in the shutdown of the banking system (and of a number of other intermediaries and markets) in March 1933. On the other side of the ledger, exceptionally high rates of default and bankruptcy affected every class of bor- rower except the federal government. An interesting aspect of the general finan- cial crises—most clearly, of the bank failures —was their coincidence in timing with ad- verse developments in the macroeconomy.1 Notably, an apparent attempt at recovery from the 1929-30 recession2 was stalled at the time of the first banking crisis (Novem- ber-December 1930); the incipient recovery degenerated into a new slump during the mid-1931 panics; and the economy and the financial system both reached their respec- tive low points at the time of the bank "holi- day" of March 1933. Only with the New Deal's rehabilitation of the financial system in 1933—35 did the economy begin its slow emergence from the Great Depression. A possible explanation of these synchro- nous movements is that the financial system simply responded, without feedback, to the declines in aggregate output. This is con- tradicted by the facts that problems of the financial system tended to lead output de- * Stanford Graduate School of Business and Hoover Institution. I received useful comments from too many people to list here by name, but I am grateful to each of them. The National Science Foundation provided par- tial research support. 1This is documented more carefully in Sections I.CAmerican Economic Review 02/1983; 73(3):257-76. · 2.69 Impact Factor
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ABSTRACT: This paper surveys recent research on employment and unemployment in the 1930s. Unlike earlier studies that tended to rely heavily on aggregate time series, the research discussed in this paper focuses on disaggregated data. This shift in focus stems from two factors. First, dissaggregated evidence provides many more degrees of freedom than the decade of annual observations associated with the depression and thus can prove helpful in discriminating between macroeconomic models. Second, and more importantly, disaggregation has revealed aspects of labor market behavior hidden in the time series that are essential to their proper interpretation and which are, in any case, important in their own right. In particular, the findings dispute the view that representative-agent models are useful for interpreting shifts in employment and unemployment over the course of the Depression.Journal of Economic Perspectives 02/1993; 7(2):41-59. · 4.21 Impact Factor
The Effects of the Great Depression on Educational Attainment
Department of Economics
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Portland, OR 97202-8199
This paper examines the relationship between the Great Depression and the educational
attainment of young adults in the 1930s, taking advantage of the state-level variation in
employment as individuals were turning a critical age. In general, there were negligible effects
of the Great Depression’s severity on average years of schooling beyond the cohort and state-
specific effects. Regional differences in availability of appropriate schools seem to matter for
the substitution effect to operate to increase the years of schooling during the recession.
Furthermore, at the top end of educational attainment, the income effect seems to outweigh the
substitution effect as the severity of the Great Depression is associated with a large drop in white
male’s college attendance. In sum, the Great Depression may have increased the average
educational attainment, but the net effects seem small. More importantly, it appears to have
compressed the distribution of educational attainment among white males.
JEL Classification Codes: I20, N32
Keywords: the Great Depression, educational attainment, schooling, human capital investment
I thank participants at 2007 SOLE Annual meeting in Chicago and RAND Labor and Population
Group Brown Bag Lunch for helpful comments. I especially would like to thank Leah Platt
Boustan, Jim Hosek and Arie Kaptyen for helpful comments. All errors are mine.
This paper examines the relationship between the Great Depression and the educational
attainment of young adults who were growing up during the 1930s. The era of the Great
Depression is one of the most tumultuous periods in American economic history. Output
declined by more than 40 percent between 1929 and 1932, and the unemployment rate exceeded
20 percent in 1932 and 1933. Unemployment was severe as the majority of those who were
unemployed experienced a spell of unemployment longer than a year in certain parts of the
country (Margo 1993).
Tremendous efforts have been devoted to the analysis of the Great Depression. Most of
studies on the Great Depression have been concerned with its causes, its propagation mechanism
and immediate effects (e.g., Friedman and Schwartz 1971, Bernanke 1983, Hamilton 1987, and
Romer 1990 to name a few). Despite the great interest, however, there has been relatively little
research on the long-term consequences of the Great Depression for those who grew up during
this period.1 This paper tries to fill the gap by investigating the effect of the Great Depression on
the level of educational attainment of those who grew up during this tumultuous time in the
history of the United States.
Generally, the theoretical effects of recessions on human capital investment are
ambiguous as economic downturns could affect educational attainment in several ways.
Recessions may affect the budget constraints of households through unemployment and income
losses. This could lead to the affected individuals leaving school earlier than would otherwise be
optimal (income effect). Furthermore, in the absence of a perfect loan market, economic
downturns could increase the proportion of individuals who are liquidity constrained, leading
further to interruption of schooling. When a breadearner of a family becomes unemployed,
1 One of a few exceptions is Fishback, Haines and Kantor (2007) who analyze the
mortality and fertility rates between 1929 and 1940.
children of a certain age may give up schooling and look for a job to help the family (added-
worker effect). On the other hand, recessions could lower the opportunity costs of attending
school, thus increasing the schooling of the affected cohorts (substitution effect). Recent studies
generally find that the substitution effect dominates the income effect, thus schooling seems to
increase during recessions.
In addition to the standard factors, the Great Depression could have affected schooling
decisions even more because of its severity and length. Two features of the Great Depression
stand out. First, many banks went under during the Great Depression and in the absence of
deposit insurance, many people lost their bank savings after massive bank failures. As a result,
some had to quit schooling, as they were unable to withdraw their deposits in time for tuition
payments. Second, because of the deflation spiral during this period, the real interest rate shot up
between 1930 and 1933.2 As prices started to rise after 1933, the real interest rate turned
negative and stayed negative until 1938. As the higher interest rate exerts a similar effect as
lowering the return on education on decision to invest in human capital, the return on education
fluctuated widely during the Great Depression.
As in many sectors that were affected by the Great Depression, the education sector
underwent drastic changes during the early 1930s. Funding was cut. School building
construction was halted. School days were shortened. In some states, pay for teachers and
administrators were in arrears. As budgets were cut and demand for vocational education
increases, curricula were modified to emphasize more on job-related skills and less on art, music,
2 Whether or not the deflation was anticipated is subject to controversy. See Cecchetti
(1992) and Hamilton (1992).
Effects of recessions on schooling have been analyzed for a number of developing
countries. Thomas, Beegle, Frankenberg, Sikoki, Strauss and Teruel (2004), using the
longitudinal data, analyze the effect of Indonesia’s financial crisis in 1997. Schady (2004), using
three waves of Peruvian household survey data, examines the effects of the 1989-91 recession on
education among school-age children. Both studies find that economic downturns tend to
increase schooling of school-age children and young adults as the opportunity cost of schooling
diminishes and employment opportunities dry up.
When exogenous events that affect the entire economy are catastrophic, such as wars and
revolutions, there is often an unambiguous impact on education of particular cohorts. For
example, Ichino and Winter-Ebmer (2004) examine the effects of WWII, by comparing
educational attainment and earnings of Austrians and Germans who grew up during WWII to
those in Sweden and Switzerland that did not participate in WWII. They find that Austrians and
Germans who were born between 1930 and 1939 have lower average education by about 16 to
26 percent of a year compared to the cohorts born before and after them. This translates into 1.5
to 4.2 percent loss of subsequent earnings. On the other hand, they do not find declines in years
of education in Sweden and Switzerland. Meng and Gregory (2002) analyze the impact of the
Chinese Cultural Revolution on educational attainment. Because all schools in urban China were
closed during the early years of the Cultural Revolution and the curriculum emphasized manual
labor and university entrance was based on students’ political attitudes in later years, certain
cohorts of Chinese men and women lost up to eight years of education in the traditional sense.
This missed opportunity exerts a toll on the affected cohorts, as each year of missed schooling is
estimated to reduce the probability of obtaining a university degree by 1 percentage point.
Identifying the effects of macroeconomic shocks is often difficult, as macroeconomic
shocks affect the entire economy. With respect to the effects on education, macroeconomic
shocks affect entire cohorts of school-age children. Without a strong identification assumption
that there is no cohort effect, the effect of macroeconomic shocks on education may be
confounded by the unobserved cohort effect. For example, Schady (2004) uses the exposure to a
macroeconomic crisis to identify the effect of Peru’s major recession on education. His exposure
index is measured as the number of years a child was between the ages of 6 and 17 during 1988-
92, and hence is indistinguishable from the unobserved cohort effect.
In this paper, the effect of the Great Depression on educational attainment is identified by
taking advantage of differences in severity of the Great Depression at the state level. As
documented by Wallis (1989), there was considerable variation in the employment index among
states during the 1930’s. Figure 1 presents the employment index at the regional level, taken
from Wallis. This figure clearly demonstrates cross-sectional as well as time-series variation in
the severity of the Great Depression. For example, the Mountain region suffered most severely,
while the South suffered far less than the rest of the country. These differences are largely
attributable to the differences in regional trend in employment growth and industrial composition
(Rosenbloom and Sundstrom 1999). During the contraction phase, regions with a high
concentration of certain industries, such as lumber and cotton suffered larger declines in
employment, while New England and South Atlantic regions suffered less. During the recovery
period (1933-37), on the other hand, New England and South Atlantic experienced slower
growth compared to previously hard-hit regions such as Mountain and East South Central. I
exploit these differences in the employment index, which are plausibly exogenous to educational
attainment, to study the effects of the Great Depression on schooling decisions.