Policy Impacts on Early Labor Market Outcomes

Abstract
Low labor force participation and employment among young people is a common concern around the world, especially in low and middle-income countries. The increasing availability of micro-data in these countries allows us to investigate the factors that affect young people’s labor market outcomes. In my dissertation, I investigate the impact of two important policies on early labor market outcomes: Compulsory military service and compulsory schooling.
Previous research on military conscription exclusively focuses on the effect of military service on subsequent labor market outcomes. In the first chapter I examine the effect of peacetime conscription on early labor market outcomes of potential conscripts before they are called up for service. In a simple theoretical framework with costly job search and no job security, I show that an expected interruption in civilian life reduces the incentive of teenagers to search for a job. Moreover, when firms bear the cost of on-the-job training, an expected interruption may reduce employers’ likelihood of offering a job to expected future conscripts. Using micro-data from Turkey, Argentina, Peru and Spain, I present evidence that the anticipation of compulsory conscription reduces the labor force participation of teenage men by 6.7 percent compared to men in their twenties, and employment by 11 percent, while raising unemployment in this group by 9 percent. Interestingly, I find opposite effects on teenage women who are not subject to conscription. Women experience a 7.5 percent decrease in the labor force participation and a 10-13 percent decrease in employment after the abolition of conscription, suggesting a high degree of substitutability between men and women.
Many government policies – old age pensions, immigration restrictions, military conscription-alter the labor market participation of some people and therefore may also shift labor demand for others. Yet, finding policy variation that alters the labor supply of one group at a single moment and in large numbers is difficult. In the second chapter, I study how the outflow of conscription-age men from local labor markets in Turkey affects the employment opportunities of men and women at close ages. I use unique variation in the military recruitment seasons across cities in Turkey. I find that the outflow of 10 men aged 20-21 increases the number of employed women and men at close ages by 1.6 and 4.6 respectively. Also, since most men who enlist in the military at 20 years old are not college graduates, I find that similarly educated men and women are affected more by the inflow or outflow of conscription-age men compared to men and women with a college degree. These results show that the evaluation of military conscription policies should also incorporate the effect on those who do not serve, and the government policies that affect work incentives of one group can have aggregate effects on other workers.
The third chapter investigates the effect of compulsory schooling on early labor market outcomes. The 1997 reform in Turkey which extended compulsory schooling from 5 to 8 years provides an opportunity to estimate the returns to schooling in a middle-income country. The availability of a rich set of early labor market variables also provides an opportunity to assess mechanisms through which returns to schooling occur. I find quite small effects of compulsory schooling on earnings of men but large positive effects on earnings of women who work, without raising their overall low rate of labor force participation. In terms of mechanisms, I find that women who worked moved into higher skill and formal sector jobs, which involved more complicated tasks on average. I propose that differential marginal costs of schooling explain the low average schooling level among women before the reform and the very different outcomes of the reform for men and women.
JEL Codes: I21, J21, J24, J31, J61, H56, R23.