The effects of test scores and truancy on youth unemployment and inactivity: a simultaneous equations approach
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The effects of test scores and truancy on youth unemployment and inactivity: a simultaneous equations approach Steve Bradley1 · Rob Crouchley1 Received: 15 May 2018 / Accepted: 4 April 2019 © The Author(s) 2019
Abstract We analyse the relationships between test scores, truancy and labour market outcomes for youths. Our econometric approach enables us to disentangle the observable direct and indirect effects of truancy and test scores on the risk of unemployment or ‘Not in Education, Employment or Training’ (NEET) from their unobserved effects. Using data for England and Wales, we show that models of youth unemployment and NEET that ignore the correlation between the unobservable determinants of test scores and truancy will lead to misleading inference about the strength of their effects. Truancy has an indirect observed effect on labour market outcomes via its effect on test scores, and a weak direct effect. The unobserved component of truancy has a direct effect on labour market outcomes. Test scores have a direct effect on those outcomes, but also mitigate the detrimental effects of truancy. Our analysis raises important implications for education policy. Keywords Test scores · Truancy and labour market outcomes · Trivariate models JEL Classification I21 · J64
* Steve Bradley [email protected] 1
Department of Economics, Lancaster University Management School, Lancaster University, Lancaster LA1 4YX, UK
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S. Bradley, R. Crouchley
1 Introduction The youth unemployment rate has been rising since 2004, pre-dating the 2008 recession, following a fairly predictable pattern with regard to cyclical downturns (Petrongolo and van Reenen 2011).1 Although it is difficult to pin down the causes of the rise in youth unemployment, one possible cause highlighted by Petrongolo and van Reenen (2011) is the quality of schooling. Furthermore, what is very clear from their analysis of UK LFS data is that the unemployment rate for 16–17 year olds was as high in 2010 as it was in the last major recession in 1980—exceeding 30%. However, official measures of youth unemployment, and teenage unemployment in particular, are likely to understate the true magnitude of joblessness for this group given the propensity of some youths to drop out of the labour market and remain economically inactive for periods of time. A better measure of the labour market fortunes of youths is therefore likely to be the proportion of the group who are ‘Not in Education, Employment or Training’ (NEET)—the unemployed and economically inactive. Since this group of young people are not engaged in skill formation of any kind, they are most likely to be ‘scarred’ by this early labour market experience. Previous research has, in fact, shown that a poor start to a young persons career can lead to an increased probability of unemployment, as well as a negative effect on future earnings. A lack of investment in human capital, such as vocational skills, acquired though work and training, or through education, causes such detriment
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