The Role of Social Welfare Policies in Stabilizing Income and Employment of Those Who Graduate from a High School in a Bad Economy

We address the role of welfare policies in stabilizing long-term income and employment status of those who graduated from a high school in recession. Our analyses involve the following three questions: (i) how do the welfare policies affect the decision-making of the unlucky cohorts on whether they make further human capital investment or start job search?; (ii) is the further human investment more effective to improve their lifetime income and employment status than the skill accumulation through learning-by-doing?; and (iii) what are the cost-effective policies to enhance their well-being? The empirical findings, regarding these questions, using the National Longitudinal Survey of Children and Youth (NLSCY) of Canada are as follows. First, the recession cohorts are less likely to choose further educational investment. The enrollment in post-secondary educational institutions tends to decrease more than their full-time employment in economic downturn. Second, the effect of some forms of the subsidy to educational investment is amplified in a bad economy. The probability of educational investment of the RESP (Registered Educational Savings Plan) users is higher in recession. Third, the difference in income and employment stability is explained by the difference in educational attainment better than by the economic state at graduation. This implies that the low income and the unstable employment of recession cohorts is due to less post-secondary education, which allows lower accessibility to the occupations and the industries that offer higher wage and stable employment. The overall results indicate that the subsidy to post-secondary educational investment can be effective to raise the welfare of the hapless cohorts.