No. 5/2020: When outside options bite: Norwegian salmon farming industry and educational investments

Abstract

This article presents empirical evidence on the effect of the opportunity cost of schooling on youths' educational investment in Norway. The findings suggest that increases in the demand for low-skilled labor originating from the Norwegian salmon farming industry's expansion harms upper secondary graduation rates. The salmon farming industry is an important workplace for low-skilled labor in Norway, and the stock of farming concessions issued by the central government increased by 25 percent in the period 1994-2006. Endogeneity concerns are handled using instruments for the industry's size based on geographical characteristics, such as the coastline of islands and variation in ocean temperature and international salmon prices. Using data on wages for low- and high-skilled workers, I find that salmon farming changes mainly affected low-skilled wages. This confirms that the growth in the industry has increased the demand for low-skilled labor. The findings from a structural model on demand for low-skilled labor, the relative wage gap between low- and high-skilled workers, and upper secondary school graduation support human capital theory.