In this paper we study how the Great Recession affected university students in terms of performance, with a special focus on the dropout probability. To do so, we use individual-level data on a representative sample of university students in Italy in 2007 and 2011. We measure the severity of the recession in terms of increases in adult and youth unemployment rate and we exploit geographical variation to achieve identification. On the one hand, an increase in adult male unemployment rate deteriorates the financial condition of the family, raising the dropout probability. On the other hand, by reducing the opportunity cost of tertiary education, an increase in youth unemployment rate decreases the dropout probability. Focusing on students who were enrolled at the university before the recession we are able to study the effects of the crisis on performance net from any potential effect on enrollment. We find evidence that overall, university dropout decreased as a result of the Great Recession and that the probability of on-time graduation increased for more motivated students. The effects, however, are considerably heterogeneous across gender and other socio-economic indicators.
