School-to-Work Transitions of Higher Education Drop-Outs: Human Capital or Signalling?

Graduates from tertiary education have good labour market perspectives but it is not well examined yet how the career perspectives of tertiary drop out differ from those of graduates. This paper aims at identifying differences in school-to-work transitions between tertiary education graduates and dropouts as well as students who did not participate in tertiary education but completed vocational training after upper secondary education. The focus will be on the different returns of different educational levels. Referring to Human Capital Theory and Signalling Theory we examine if additional years of tertiary education or rather credentials deliver higher returns to tertiary education non-completers. Especially in economic crises we expect that tertiary education drop outs will have huge difficulties in entering the labour market as jobs are scarce and the competition is hard. In a first step we study the probability of entering the labour market and job search durations of the different educational levels. The further step comprises the close scrutiny of job quality (occupational status of the first job) and adds information about economic crises to the analyses. Our results show that higher education drop outs in Germany do have difficulties entering the labour market but obtain a higher occupational status job than students with vocational training. Furthermore for dropout students, years spend in education are important, especially in terms of occupational status. In times of economic prosperity job search durations of tertiary graduates and non-completers are the same, while tertiary education completers fare better in economic crises.