Crises and human capital accumulation

Abstract.  This paper studies the effects of crises on human capital formation. Theoretically, a crisis undermines total factor productivity, which reduces the return to working and to accumulating physical capital. If the crisis is temporary, young agents will study now and work later. Human capital rises. To test our model we rely on inflation crises as our main empirical proxy. Using GMM panel procedures, our analysis for 86 countries in 1970–2000 confirms the positive effects of crises on human capital. Our main findings survive several robustness tests. JEL classification: E31, D90