Publication in the Journal of Environmental Economics and Management
A new paper by Aline Bütikofer, Antonio Dalla-Zuanna, and Kjell G. Salvanes finds that Norway’s oil boom raised high school dropout rates and reduced academic and university enrollment—except in engineering—mainly due to financial incentives.
The paper investigates how the emergence and growth of Norway’s petroleum industry following the 1969 oil discovery influenced educational choices across regions and over time. Using detailed population-wide register data and a dynamic difference-in-differences framework, the authors examine both immediate and long-term effects on schooling outcomes in areas more or less exposed to the oil sector.
In the short term, the findings reveal that high school dropout rates among young men increased significantly in oil-exposed regions, largely due to the rising opportunity cost of education as lucrative oil-related jobs became available. However, this effect was temporary—many of those who initially dropped out later returned to complete their education. As the oil sector expanded and matured, the local labor market continued to shape educational incentives. The study documents a sharp and sustained increase in vocational high school enrollment, accompanied by a decrease in academic high school participation. This shift was driven by higher returns to vocational education in oil-rich areas and ultimately contributed to a long-term decline in university enrollment.
Yet, this reduction in higher education was not uniform across fields. The share of students pursuing engineering degrees rose substantially, as the economic returns to engineering increased in tandem with the oil sector’s technological development. Women’s educational decisions were less directly affected at first, reflecting their lower participation in the oil industry, but over time, they too increasingly enrolled in vocational tracks, likely due to spillover effects on the broader service economy.
The authors attribute these shifts in educational choices primarily to economic incentives, such as changes in expected wages and opportunity costs, rather than to public investment or changes in family resources. Their analysis underscores how permanent economic restructuring—like that triggered by the development of Norway’s oil industry—can significantly reshape human capital formation, particularly when the labor market demands evolve over decades.
The study contributes to our understanding of how educational systems respond to large-scale economic change and highlights the importance of designing policies that allow for more adaptable and reversible educational paths. This is particularly relevant in the context of today’s transition toward a green economy, where flexible and future-oriented skill development will be essential.