Working Paper

Do Human Capital Adjustments Protect Youths from Structural Change?

Abstract: Structural changes to labor demand can have lasting consequences on the employment and earnings of workers in affected industries and geographies. However, individuals coming of age may avoid similar fates if they internalize salient changes to the returns to education and adjust their human capital investments. This paper studies the effects of exposure to structural labor demand shocks during youth and adolescence on human capital accumulation and later-life earnings. I use student-level administrative data from Texas and a modified difference-in-differences design that compares changes in outcomes across cohorts of students living in areas that were more or less exposed to Chinese import competition. Students exposed to larger shocks were 4% more likely to enroll in college and 8% more likely to earn a bachelor’s degree. I provide evidence that these adjustments, along with shifts of fields of study away from those directly exposed to import competition in both high school and college, shielded students from more than 90% of the shock’s negative effects on later-life earnings. My results contribute a silver lining to the gloomy findings of prior work on the long-term effects of “the China shock” and other negative labor demand shocks: if individuals coming of age sufficiently adjust their human capital investments, they can emerge relatively unscathed.

Keywords: human capital; returns to education; structural change; import competition; labor demand;

JEL Classification: F16; H73; I24; I26; J23; J24; O33;

https://doi.org/10.24149/wp2411

Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Working Papers

Publication Date: 2024-11-09

Number: 2411