René Morissette, Ping Ching Winnie Chan, and Yuqian Lu are research economists in the Social Analysis Division of Statistics Canada. The authors wish to thank participants at the CLSRN Conference held in
June 2012 in Calgary, and two anonymous referees for very useful comments. The data used in this paper are restricted- access data from Statistics Canada. External researchers can request access through Statis-
tics Canada’s Research Data Centres. [Submitted February 2013; accepted February 2014]
ISSN 0022- 166X E- ISSN 1548- 8004 © 2015 by the Board of Regents of the University of Wisconsin System
T H E J O U R N A L O F H U M A N R E S O U R C E S • 50 • 1
Wages, Youth Employment, and School Enrollment
Recent Evidence from Increases in World Oil Prices
René Morissette Ping Ching Winnie Chan
Yuqian Lu
Morissette, Chan, and Lu
abstract
We exploit variation in wage growth induced by increases in world oil prices to estimate the elasticity of young men’s labor market participation and
school enrollment with respect to after- tax wages. Our main fi nding is that in the aggregate, increased wages have a dual impact: They tend to reduce—at
least temporarily—young men’s full- time university enrollment rates but bring back into the labor market some young men who were neither
enrolled in school nor employed. Contrary to previous research, we fi nd little evidence that young men with no high school diploma now leave school in
response to increased wages.
I. Introduction
Static labor supply models imply that increased wages unambiguously raise aggregate labor supply at the extensive margin Cahuc and Zylberberg 2004. If
so, to what extent does the increase in youth labor market participation that results from improved wage offers come from: a a reduction in school enrollment; b the
re- entry into the labor market of young individuals who were neither enrolled in school nor employed; and c an increase in the labor supply of existing students?
The main contribution of this study is to answer this question. Using data that
covers much of the 2000s, we provide recent evidence on the short- term impact of wages on youth employment, school enrollment, likelihood of being neither enrolled
in school nor employed, and likelihood of being both enrolled and employed. To do so, we exploit variation in youth wages induced by increases in world oil prices that
took place during the expansionary period from 2001–2008.
Our empirical strategy relies on three facts. First, Canada’s oil reserves, and conse- quently oil production, is concentrated in three Canadian provinces: Alberta, Saskatch-
ewan, as well as Newfoundland and Labrador. Second, the proportion of young men employed in the oil industry differs markedly across provinces and education levels.
Within the two largest oil- producing provinces Alberta and Saskatchewan, young men with a high school diploma or less education are employed in this sector to a greater
extent than their better educated counterparts. Third, oil prices received by Canadian oil producers more than doubled between 2001 and 2008. Combined, these facts sug-
gest that the substantial increases in world oil prices that were observed between 2001 and 2008 induced cross- regional and cross- educational variation in young men’s labor
demand, and thus in young men’s wage growth. Using data from the Canadian Labour Force Survey LFS, we use this variation in wage growth to assess the causal impact
of wages on young men’s employment and school enrollment decisions.
Our main fi nding is that the growth in young men’s labor market participation that results from improved wage offers generally comes from two sources: a perhaps
temporary reduction in school enrollment—specifi cally a drop in full- time university enrollment—and the re- entry into the labor market of some young men who were
neither enrolled in school nor employed. This fi nding holds under a variety of robust- ness checks and does not appear to be driven solely by selective migration. However,
we fi nd little evidence that young men with no high school diploma leave school in response to increased pay rates. Using grouping estimators, we compare young men’s
and young women’s responses to increased wages. The main difference that emerges is that for young women, the increase in labor market participation that follows rising
wages originates from growth in the part- time employment rate of existing female students, rather than from a reduction in female schooluniversity enrollment.
The paper is organized as follows. Section II reviews previous studies and provides evidence that increases in world oil prices raised wages of young Canadian men dur-
ing the 2000s and that the resulting wage growth led to a reduction in full- time uni- versity attendance and in the proportion of young men who were neither enrolled in
school nor employed. Section III presents the data and estimation strategy used in the study. Results are shown in Section IV. Robustness checks are conducted in Section V.
Concluding remarks follow.
II. Background
