Did the Great Depression affect Educational Attainment in the US?
ABSTRACT Great Depression is an example of a macroeconomic crisis that produced adverse economic and social effects in all spheres of life. Theoretical arguments about the real effects of the Great Depression on education vary. First is economic hardships, which might force individuals eligible to go to school to work instead. Second is that high unemployment would make going to school the best other viable alternative. Following these theoretical notions, this paper explores the impact of the Great Depression on education, on race (whites and blacks) and gender (males and females), during the period 1930-1940. Furthermore, I test the effects of state employment indices on education. The results (using 1960 census data) show some evidence that education of whites born between 1911 and 1915 was affected. However, there is no evidence that the variation in state employment indices affected the decision of schooling on the average (mean).
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ABSTRACT: The authors establish that season of birth is related to educational attainment because of school start age policy and compulsory school attendance laws. Individuals born in the beginning of the year start school at an older age, and can therefore drop out after completing less schooling than individuals born near the end of the year. Roughly 25 percent of potential dropouts remain in school because of compulsory schooling laws. They estimate the impact of compulsory schooling on earnings by using quarter of birth as an instrument for education. The instrumental valuables estimate of the return to education is close to the ordinary least squares estimate, suggesting that there is little bias in conventional estimates. Copyright 1991, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.The Quarterly Journal of Economics. 02/1991; 106(4):979-1014.
- Brookings Papers on Economic Activity. 02/1973; 4(1):67-132.
Electronic copy available at: http://ssrn.com/abstract=1907942
Did the Great Depression affect Educational Attainment in
Great Depression is an example of a macroeconomic crisis that produced adverse economic
and social effects in all spheres of life. Theoretical arguments about the real effects of the
Great Depression on education vary. First is economic hardships, which might force
individuals eligible to go to school to work instead. Second is that high unemployment would
make going to school the best other viable alternative. Following these theoretical notions,
this paper explores the impact of the Great Depression on education, on race (whites and
blacks) and gender (males and females), during the period 1930-1940. Furthermore, I test the
effects of state employment indices on education. The results (using 1960 census data) show
some evidence that education of whites born between 1911 and 1915 was affected. However,
there is no evidence that the variation in state employment indices affected the decision of
schooling on the average (mean).
The author would like to thank the anonymous referees of this journal for constructive comments on previous version of this
paper; however, the author is solely responsible for any shortcomings.
Citation: kisswani, khalid, (2008) "Did the Great Depression affect Educational Attainment in the US?." Economics
Bulletin, Vol. 9, No. 30 pp. 1-10
Submitted: October 25, 2008. Accepted: December 19, 2008.
Electronic copy available at: http://ssrn.com/abstract=1907942
Macroeconomic crises have adverse effects on various aspects of social and economic
life, generating and profoundly impacting macroeconomic outcomes such as production
and jobs. The Great Depression is a prime example of a macroeconomic crisis that
produced adverse economic and social effects in all spheres of life. Kirkwood (1972)
argues that during the Great Depression the fermenting of a macroeconomic crisis was
characterized by many factors. Gross National Product (GNP) declined by 30% in real
terms, farm income fell by 50 %, which further increased poverty, businesses closed,
factories shut down, and banks ultimately failed. Kirkwood (1972) further shows that
employment was affected severely. In 1929 only 3.2% of the population was
unemployed, whereas in 1933 the unemployment reached as high as 25%. Moreover, net
investment during the Great Depression era was negative, because private investment was
far below depreciation. Thus, most effects of the Great Depression are well known and
fairly cited. However, an important variable that has been ignored and has a bearing on
our understanding the impact of macroeconomic crises is educational attainment.
The theoretical arguments about the real effects of the Great Depression on education
vary. The first is that of economic hardships, which invariably causes the cost of
education to become unaffordable. This might force individuals eligible to go to school
to work for their sustenance. As a result, high school students would drop out, or would
not seek further education. The second argument is that high unemployment would
reduce the opportunity cost of going to school, making going to school the best other
viable alternative. These two theoretical arguments represent the relation between
income and substitution effects, and how one argument dominates the other. As we will
see, these arguments are crucial in understanding the impact of macroeconomic crises on
Following these theoretical notions, this paper intends to explore the impact of the Great
Depression on education, contributing to the literature by providing the evidence on these
effects on race (whites and blacks) and gender (males and females), during the period
from 1930 to 1940. Furthermore, this paper examines the effects of state employment
indices on the average education (at the mean). More importantly, it tests the effects of
state employment indices on the entire distribution of education (quantile regression).
The results (using individual census data from 1960) show some evidence that the Great
Depression affected education of whites born between 1911 and 1915. However, the
results show no evidence that the variation in state employment indices affected the
decision of schooling on the average (mean), but it affected the education of white males
at the top of the distribution (90% percentile).
This paper is organized into five sections. Section 2, reviews the literature. Section 3,
explores the theory behind demand for education. Section 4, describes the data. Section 5,
outlines the effects of the Great Depression on the educational attainment, and section 6
The literature of human capital and earnings has grown out of the work of Mincer (1974)
and Becker (1975). The literature shows that an individual chooses the level of education
that maximizes the present value of earnings compared to the cost of seeking this level
(direct or indirect), given the borrowing rate. Altonji (1993) expanded Mincer’s (1974)
and Becker’s work (1975) by treating education as a sequential choice made under
uncertainty. He examined how variables influencing tastes for schooling, ability to do
college work, and the payoffs to college affect the expected return to schooling.
Due to certain institutional features, like compulsory laws and constraints on borrowing,
the actual demand for education may be different from optimal choices. Such
institutional constraints may affect the educational attainment in two ways. First,
compulsory attendance and child labor laws may constrain education demand for bottom
deciles or percentiles. People may stay in school longer than what they would choose to
in the absence of these laws. Second, borrowing constraints may affect the education
choice for top deciles or percentiles. In the absence of student loans people may be
unable to attend school, even though the return on their schooling could exceed the
interest rate on loans.
A number of studies find large effects of compulsory education laws on the probability of
high school completion between 1920 and 1934. Lang and Kropp (1986) find that
compulsory education laws affect enrollment, even for groups not targeted by the laws.
Angrist and Krueger (1991), through the use of micro-data from the US Census data, find
that children born earlier in the year will obtain fewer years of schooling. In their study
they show a student’s enrollment will depend on his age, which is determined by the
quarter of birth. Lleras-Muney (2002), using the 1960 Census for students in secondary
schooling from 1915 to 1939, also finds that increasing the legal age attendance
requirement by one more year leads to a 5% increase in educational attainment. This
effect was significant for whites but not for blacks.
Extreme circumstances, such as war, natural disasters, or political upheavals might also
affect educational attainment. Meng and Gregory (2002) studied the impact of
educational interruptions during the Chinese Cultural Revolution (1966-1977) when most
schools in urban China ceased operations for 6 years. They find that the school
interruption had a substantial impact on educational attainment, especially when the
interruption occurs at high school level. They also find that children whose parents had
lower educational achievement and lower occupational status were affected the most.
Ichino and Winter-Ember (2004) tested the effects of World War II on educational
attainment. They find that World War II led to a significant drop in the educational
attainment of individuals who were of elementary school age during or immediately after
the conflict, as opposed to those born in the previous or subsequent decades. Comparing
the evidence for four countries, of which two were directly involved in the conflict
(Austria and Germany) and two were not (Sweden and Switzerland), the magnitude of
this educational loss is approximately 20% in years of education in Austria and Germany.
These individuals also experienced a sizable loss of earnings some 40 years after the war,
which may be attributed to the educational loss caused by the conflict.
On the other hand, other research shows that macroeconomic crises do not affect
education. Goldin (1998) finds that secondary-school enrollment and graduation rates
increased spectacularly in much of the US from 1910 to 1940; the advance was
particularly rapid from 1920 to 1935, during the early years of the Great Depression, in
the industrial area of the Northeast and Midwest. De Ferranti et al (2000) suggest that
large enrollment decisions are unaffected by macroeconomic crises, especially moderate
In 2002, Argentina’s economy suffered the culmination of an economic decline that
began in late 1998. The crisis was all the more unusual because it occurred when the rest
of the world was experiencing slow growth, but not recession. Real GDP fell 28% from
peak (1998) to trough (2002). Argentina’s currency, the peso, was devalued in January 2002.
Inflation was 41% in 2002 this caused real wages to fall 23.7% in 2002 and unemployment
rose from 12.4% in 1998 to 18.3% in 2001 and 23.6% in 20021. However, more recent work
on Argentina confirms that the crisis of the late 1990s and early 2000s did not change
overall enrollment level, but it may have negative effects on the quality of schooling
because of high associated rates of teacher absenteeism (Espana et al, 2002).
In Indonesia the deep financial crisis of 1998 appears to have little effect on schooling
outcomes (Thomas et al, 2004). Schady (2004), in his analysis of the impacts of the
macroeconomic crisis (1988-1992 ) on education in Peru, finds no effect on attendance
rates but a significant decline in the fraction of children who are both employed and
attend school. Therefore, given all previous findings, a careful empirical work is needed
in order to understand the ambiguous effect of macroeconomic crises on schooling.
3. Demand for Education.
In the economic model of human capital, individuals acquire schooling until the marginal
benefit of an additional year of education equals the marginal cost in order to maximize
the present value of lifetime income (Willis, 1986; Altonji, 1993). The marginal benefit
of one year of schooling is the resulting increase in the discounted expected stream of
earnings, and the marginal cost is the forgone income and direct private costs like tuition
and books. Given this decision rule, the reason some individuals invest in more
education than others must arise from factors that either raise the rate of return they
receive or lower the cost they must pay for funds.
The effect of a macroeconomic crisis on schooling is ambiguous in theory. In general, an
adverse macroeconomic shock will depress current employment and wage prospects, thus
the opportunity cost of attending school will fall. Holding everything else the same, this
should increase investments in human capital. A shock could also make borrowing
constraints more binding and thus reduce the total amount of schooling attainment.
When macroeconomic shocks are persistent, they may also depress expected lifetime
earnings, thus affecting the marginal benefit from schooling. If the lifetime earnings of
all individuals are reduced by the same percentage, regardless of their schooling, then the
marginal benefit associated with an additional year of schooling will be lower. Crises
need not, however, have a uniform effect across the board on expected earnings.
Additionally, the effect of a crisis on the wages and employment prospects of adults in a
1 United States Congress report (June 2003).
household may also have an effect on the schooling and employment decisions of
children (Schady, 2004).
Thus, because of the ambiguous effect on schooling, students or their parents may choose
more or less schooling; they may anticipate or postpone further schooling. The total
effect of a crisis on schooling will depend on the relative magnitude of the changes in the
marginal costs and benefits from education.
In this paper, I use the 1960 Census which is provided in the Integrated Public Use
Microdata Series (IPUMS)2. The IPUMS consists of twenty-seven high-precision
samples of the American population drawn from fourteen federal censuses. The IPUMS
assigns uniform codes across all the samples and brings relevant documentation into a
coherent form to facilitate analysis of social and economic change. Since the IPUMS
includes nearly all the detail originally recorded by the census enumerations, users can
construct a great variety of tabulations interrelating any desired set of variables.
My sample is drawn from the 1% state sample. I limit the sample to whites and blacks
(men and women) born in the US between 1896 and 1925. The sample contains 240,018
white males, 251,677 white females, 24,360 black males, and 27,588 black females.
Birth year is derived from reported age and quarter of birth.3 Individuals born in Hawaii
and Alaska are excluded from the sample. People reported to be born in the District of
Columbia and people who did not report their state of birth are excluded as well. This is
done because this paper utilizes the state employment indices for the period of 1930-
1940, and these indices do not include the District of Columbia. Depending on the state
of birth, 48 dummy variables for states are included where each equals one if the person
is born in the state, zero otherwise. Years of education are the number of years of
schooling completed, and the number is derived from the highest grades completed (years
of education range between 0-18 years of education). In this paper I add to the data the
states employment indices from 1930 to 1940, which I use from Wallis (1989).
Following Angrist and Krueger (1991), I constructed four dummy variables on the basis
of quarter of birth. This is done because most school districts require students to attain
age six by January 1 of the academic year in which they plan to attend and to turn 16 (in
most of the states) to drop out of school. These requirements cause quarter of birth and
years of education to be correlated (Angrist and Krueger, 1991). A student who is born
in the third quarter will wait until the subsequent year to enroll in school, while another
student born in the first quarter will be able to enroll that same year. This means that the
variation in education is related to quarter of birth. Also, according to the quarter of
birth, some students turn 16 before others, which enable them to drop out of school
2 Ruggless et al, 2004.
3 Census reports data in April, therefore, year of birth is equal to “1960-age”, if born in first quarter, and
year of birth is equal to “1960-age-1”, if not born in first quarter.