Labor Market Shocks, Firm-specific Pay Premia, and Higher Education Investment

This thesis consists of two chapters. The first chapter uses variation in the timing of parental layoff to identify the effect of parental job loss on higher education enrollment. Unlike research that compares laid-off workers to workers who do not lose their jobs, all families in our analysis experience a layoff at some point. The treatment group (layoff when child is 15-17) and control group (layoff when child is 21-23) have statistically indistinguishable initial characteristics, but substantially different higher education enrollment rates. The results show that parental job loss between ages 15 and 17 decreases college enrollment by 10 percentage points. The second chapter studies the role played by firm-specific premia in the relationship between higher education and future earnings. There is an growing consensus that firm-specific premia are an important determinant of wages, but there is little evidence regarding which factors allow workers to gain employment at a firm with a high pay premium. Using administrative data on firms and workers matched to detailed administrative college enrollment data, I provide the first estimates of the effect of education on firm pay premia. Specifically, I use a difference-in-differences matching design to study the firm-specific premia returns to associate’s degrees. I find that an associate’s degree increases firm-specific premia earned by workers by 5.7 percent, suggesting that more than a quarter of the total earnings returns to associate’s degrees is attributable to firm-specific premia gained by moving to higher-paying firms.