Unemployment has a conflicting influence on Higher Education (HE) dropout, decreasing both opportunity costs and expected benefits of studying. Herein, we aim to distinguish these two effects, by using the unemployment rate of individuals with secondary education for measuring the first effect and the unemployment rates of HE recent graduates for the second effect.
Information on the undergraduate courses provided by Portuguese HE Institutions is used to estimate a probit model where the course dropout rate is a function of both unemployment rates at secondary-education and HE levels.
Lower opportunity costs seem to favour the decision of HE students to continue enrolled, and lower employment prospects, in a certain HE course, increases its dropout rate. Dropout rates are higher in less practical courses and with higher percentages of males, foreign and older students. COVID-19 had a stronger effect on the dropout–unemployment relationship in Services, Welfare, Arts and Humanities courses.
Course employment is an essential indicator for courses’ evaluation and vacancies’ definition. Our results suggest that policymakers should reduce vacancies of higher unemployment courses, redirecting candidates to other courses, thus contributing to reduce skill-mismatches and academic dropout and increasing returns to education.
We contribute to the literature by distinguishing the two effects of unemployment on dropout using unemployment rates at different levels of education. We also consider the unemployment heterogeneity among courses by using course-specific unemployment rates instead of the average HE rate and investigate the COVID-19 crisis impact in the dropout–unemployment relation.
