Losing prospective entitlement to unemployment benefits: Impact on educational attainment

Providing income support to unemployed education-leavers reduces the returns to investments in education because it makes the consequences of unemployment less severe. We exploit in a difference-in-differences approach a two-part policy reform in Belgium to study whether conditioning the prospective entitlement to unemployment benefits for education-leavers on age, and schooling attainment can affect educational achievements. The first part of this reform disqualified labor market entrants over the age of 25 from benefits for which they were otherwise eligible if unemployed with little or no employment experience one year after leaving education. The second part conditioned the eligibility for this unemployment benefit for youth below the age of 21 on the attainment of a high school degree. While we find evidence that the prospect of financial loss in case of unemployment can significantly raise degree completion and reduce dropout in higher education, we find no evidence of an increase in the graduation rate in high school.