Working while enrolled in a university: does it pay?

This study examines how university students' employment decisions affect their labor market success after graduation. The study is based on individual level panel data of Finnish university students from the years 1987–1998. The OLS estimates show that in-school work experience is associated with higher earnings and employment after graduation. However, work months during the enrollment are not exogenously chosen. Average local unemployment rate during enrollment is used as an instrument for work experience acquisition to correct for the endogeneity bias. Comparing graduates with equal times-to-degree, the IV estimates show that work experience increases earnings considerably one year after graduation. The effect is smaller and statistically insignificant in later years. Taking into account that working usually leads to longer times-to-degree, IV estimates show no significant returns to student employment.