Wages, youth employment, and school enrollment: recent evidence from increases in world oil prices

Canada's oil reserves are concentrated in three Canadian provinces: Alberta, Saskatchewan, and Newfoundland and Labrador. Oil prices received by Canadian oil producers more than doubled between 2001 and 2008. The proportion of young men employed in the oil industry differs markedly across provinces and education levels. Taken together, these facts suggest that the increases in world oil prices observed between 2001 and 2008 may have induced cross-educational and cross-provincial variation in labour demand and male wage growth in Canada. Using data from the Canadian Labour Force Survey, this study exploits this variation in wage growth in order to estimate the elasticity of young men's labour market participation and school enrollment with respect to wages. The main finding is that increased wages have a dual impact for young men: they tend to reduce their full-time university enrollment rates - at least temporarily - and to bring (back) into the labour market those who were neither enrolled in school nor employed. Contrary to previous research from the United States, the study finds no evidence that school enrollment rates of less-educated young men fall in response to increased pay rates, whether these are measured in real terms or relative terms. These findings hold under a variety of robustness checks and do not appear to be driven solely by selective migration.

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