Elena Loutskina

Labor Market Polarization and Student Debt

This paper uses a new empirical design to explore how labor market polarization affects individuals’ incentive to pursue education funded on the margin by student debt. We argue that the labor market polarization – where automation replaces mid-skill and mid-education-level jobs – changes the marginal benefits of education and training and sharpens incentives to incur student debt. We advance a new measure of labor market polarizations that allows to capture the heterogeneity of this phenomena across geographies and time. Using this measure, we find that U.S. CBSAs that experience deeper labor market polarization see an increase in student debt balances and in the number of people pursuing student debt. On average, the decline in middle-skill jobs and wages has little effect on individuals’ ability to pay down existing student debt. The effects are most pronounced in ZIP codes with lower average credit scores, lower incomes, and higher share of the minority population.