This paper explores the effects of unemployment on the school enrolment decisions. A few studies that have taken up this issue in the
past have produced results that are seemingly contradictory with each
other. We build a model of the enrolment decision that is capable of explaining these results in a unified manner. In this model, unemployment affects the enrolment decision both through changing costs of and returns to education (investment effect) and through changing parental wealth and thus affecting intergenerational transfers (wealth effect). We develop an empirical framework that allows us to test presence of these two effects separately, and apply this to panel data of Spanish regions on university enrolment. We find that both effects
are present.
Keywords: Education Participation, Unemployment, Intergenerational
Transfers, Opportunity Costs.