Graduating in Austerity: Do Welfare Cuts Affect the Career Path of University Students?
Lead Research Organisation:
University of Oxford
Department Name: Oxford Martin School
Abstract
Austerity policies often follow a period of fiscal stimulus. For example, the UK government's borrowing is estimated to have reached approximately 17% of the GDP during the COVID-19 pandemic, marking the highest rate of borrowing since World War II. In the aftermath of the pandemic, the government has implemented or considered various measures to curb public spending and transfers. While austerity measures are typically temporary in nature, they can unintentionally yield lasting effects on the labour market prospects of university graduates. This is because the conditions in the labour market at the time of entry can exert a persistent influence over the careers of university students (Kahn, 2010; Oreopoulos et al., 2012; Altonji et al., 2016; Schwandt and VonWachter, 2019).
To understand how welfare cut affects the career path of graduates, we propose to study the introduction of the Welfare Reform Act 2012 by the British government. The extent of the cut varied substantially with the worst-hit local authorities losing around four times as much as the least-affected local authorities (Beatty and Fothergill, 2013). The reform exhibited a strong negative fiscal multiplier with a sizeable reduction in production (Fetzer, 2019) and employment (Adelino and Goldman, 2022), suggesting that job seekers in severely affected areas faced challenging labour market conditions. Moreover, a weaker safety net could increase the first-time job seekers' vulnerability to cope with the shocks since early in their careers many of them do not have enough resources to smooth consumption.
To examine whether welfare cuts had detrimental effects on the transition of young adults from university to the workforce, we first study the effects on their likelihood of getting employed and initial earnings. Second, we examine whether these adverse effects on labour market entry had a persistent influence on their careers in terms of earning profiles and job quality. Third, to understand the underlying mechanism and heterogeneity, we explore the differential labour market outcomes for graduates majoring in different disciplines of study and by gender, ethnicity, parental education, and socioeconomic background. This exercise will provide us with additional insights into which segments of graduates are more susceptible to the impact of welfare cuts.
An empirical challenge to studying the effect of austerity on graduates is that survey data can only give fragmented information making it impossible to get a complete picture of how university graduates from different educational backgrounds transition to the labour market. The linked administrative data available through the Longitudinal Education Outcomes (LEO) programme fills up this gap. Also, the variation in the size of expenditure cut across localities allows us to compare university graduates in localities that experienced deeper welfare cuts with those from less-affected areas controlling for any pre-existing differences across localities and long-term labour market trends.
Overall, the findings of this study will provide a better understanding of how graduates cope with labour market shocks induced by austerity policies. Between 2012 and 2015, 1.5 million students obtained their first degree (Source: HESA). Our results will shed light on whether a weaker labour market combined with a weaker safety net had a lasting impact on their careers. This is important to understand as it could affect the well-being of an entire cohort and have implications for within- and across-cohort inequality. The findings could also be useful in designing austerity policies shielding the most vulnerable.
To understand how welfare cut affects the career path of graduates, we propose to study the introduction of the Welfare Reform Act 2012 by the British government. The extent of the cut varied substantially with the worst-hit local authorities losing around four times as much as the least-affected local authorities (Beatty and Fothergill, 2013). The reform exhibited a strong negative fiscal multiplier with a sizeable reduction in production (Fetzer, 2019) and employment (Adelino and Goldman, 2022), suggesting that job seekers in severely affected areas faced challenging labour market conditions. Moreover, a weaker safety net could increase the first-time job seekers' vulnerability to cope with the shocks since early in their careers many of them do not have enough resources to smooth consumption.
To examine whether welfare cuts had detrimental effects on the transition of young adults from university to the workforce, we first study the effects on their likelihood of getting employed and initial earnings. Second, we examine whether these adverse effects on labour market entry had a persistent influence on their careers in terms of earning profiles and job quality. Third, to understand the underlying mechanism and heterogeneity, we explore the differential labour market outcomes for graduates majoring in different disciplines of study and by gender, ethnicity, parental education, and socioeconomic background. This exercise will provide us with additional insights into which segments of graduates are more susceptible to the impact of welfare cuts.
An empirical challenge to studying the effect of austerity on graduates is that survey data can only give fragmented information making it impossible to get a complete picture of how university graduates from different educational backgrounds transition to the labour market. The linked administrative data available through the Longitudinal Education Outcomes (LEO) programme fills up this gap. Also, the variation in the size of expenditure cut across localities allows us to compare university graduates in localities that experienced deeper welfare cuts with those from less-affected areas controlling for any pre-existing differences across localities and long-term labour market trends.
Overall, the findings of this study will provide a better understanding of how graduates cope with labour market shocks induced by austerity policies. Between 2012 and 2015, 1.5 million students obtained their first degree (Source: HESA). Our results will shed light on whether a weaker labour market combined with a weaker safety net had a lasting impact on their careers. This is important to understand as it could affect the well-being of an entire cohort and have implications for within- and across-cohort inequality. The findings could also be useful in designing austerity policies shielding the most vulnerable.
