The effect of education on poverty: A European perspective

More than 1 in 7 people in Europe live in a household whose income is below the national poverty line, but more than 30% of people consider themselves to live in poverty. This study provides evidence on the causal relationship between education and various dimensions of poverty. I construct a novel database comprising compulsory schooling reforms in 32 European countries and use them as instruments for education. I find economically large poverty-reducing effects of education. This holds true for several objective poverty measures, which are both absolute and relative in nature, and a subjective poverty measure. An additional year of education thus reduces not only the likelihood of being classified as living in poverty but also the likelihood of considering oneself to live in poverty. Increases in labor force participation and full-time employment as well as better health are potential mechanisms behind these results. Notably, countries in Eastern Europe seem to drive the results.