The impact of local labour market conditions on school leaving decisions

We use data from the British Household Panel Survey and Labour Force Survey to examine the relationship between the demand for post compulsory education and prevailing labour market conditions. We explicitly incorporate the role of family resources by allowing effects to differ between young people whose families are home owners and those whose families are not home owners. We find evidence that household resources affect school leaving decisions mainly through past investment in the child’s human capital, and that local labour markets significantly affect school dropout rates at age 16 for youths living in tenant households, specifically in social housing. Our findings are consistent with the presence of credit constraints.