The demand for higher education: A static structural approach accounting for individual heterogeneity and nesting patterns

In this paper we estimate a structural model of higher education participation and labour choices in a static setting that accounts for individual heterogeneity and possible nesting structures in the decision process. We assume that young people that complete upper secondary education are faced with three choices, go to higher education, not go to higher education or go to higher education and work part time. We model this choice using Irish data incorporating variation in costs (direct and indirect), the estimated lifecycle returns and household credit constraints. Using a mixed nested logit choice model we find that simulated lifecycle earnings and a choice-specific household income variable impact the educational/labour choices of young people. We also find evidence that preference for choices with higher simulated lifecycle earnings and household income vary significantly across individuals. Policy simulations undertaken find that varying student financial aid can lead to increases in higher education participation.

► We estimate a structural model of higher education participation and labour choices in a static setting. ► The model accounts for individual heterogeneity and possible nesting structures in the decision process. ► It is a three choice model where education and labour choices are not treated as mutually exclusive. ► A mixed nested logit is estimated and finds lifecycle earnings positively affect the education outcomes of young people. ► Policy simulations with respect to student financial aids are also carried out from the deterministic element of our model.