The Effect of Higher Education on Youth Unemployment in European Regions During a Period of Economic Instability

This paper examines the impact of higher education on youth unemployment. Following the 2008 financial crisis, youth unemployment returned to the fore as a serious concern among policy makers in Europe. A crucial difference from previous recessions is that this time around supply of higher education opportunities was much higher than in the 1980s, and indeed higher education participation rates grew rapidly in many regions during this period. Drawing on previous work on youth unemployment and the economic impacts of education we identify a variety of channels through which higher education is likely to influence youth unemployment. We examine this issue using a macro-panel of European regions for the period 2002-2012. This decade was characterized by variation in economic activity and higher education rates. Our results suggest that expansion of higher education during this period had a mitigating effect on youth unemployment and not recognizing this external benefit of education risks underestimating the effects of macroeconomic shocks on young people.