Schooling choices’ responses to labor market shocks : evidence from a natural experiment

Abstract EN

This study uses the closure of Israeli labor market to examine the effect of a large labor market shock on educational choices of Palestinian youth.

Immediately after the outbreak of the Second Intifada (Palestinian uprising against Israel) in October 2000, Israel severely restricted the entrance of Palestinian workers (commuters) to its labor market, which resulted in a more than 50% reduction in the number of Palestinian workers in Israel, mostly male workers concentrated in low-skill jobs.

Our identification strategy relies on the variation in the geographical distribution of commuters within the West Bank prior to the Second Intifada.

We implement a difference-indifference strategy to compare high school dropout rates between localities with different commuting shares before and after the shock.

We find that the closure had led to a significant decline in high school dropout rates in the case of male students aged between 15-19 years, but not for female students.

The triple difference analysis confirms that the gender gap in high school dropout rates had decreased more in localities with high commuting shares than that in localities with low commuting shares.

These effects are driven by the significant decline in employment prospects for school dropouts in localities with high commuting shares before the shock.