The Effects of Exposure to a Large-Scale Recession on Higher Education and Early Labor Market Outcomes

This study examines the effects of timing of exposure to the 1997–1998 Asian financial crisis on higher education and early labor market outcomes. We estimate an extended difference-in-differences model using variation in age at exposure and regional severity of the recession in South Korea. Using data from the Census and twenty waves of the Youth Panel, we find that individuals from regions more severely affected by the recession are less likely to attend and graduate from a four-year college and tend to shift away from humanities majors to STEM majors. We also find that the quality of the first job, as measured by wage, firm size, and white-collar status, deteriorates for those who grew up in regions hard-hit by the crisis. These effects are more pronounced for individuals who were younger (below age 13) at the time of the recession. We provide suggestive evidence that the adverse recession effects are driven by non-monetary and broader neighborhood factors, rather than household credit constraints.