Stratified Scars: Social inequality in the labor market consequences of apprenticeship dropout

While the association between apprenticeship dropout and negative labor market consequences is well documented, the causal link and social stratification in this effect are less clear. Using geo-referenced administrative data from Germany and a conditional instrumental variable approach that exploits distance between place of residence and large firms, we find negative financial consequences but show that the dropout penalty is entirely concentrated among individuals from disadvantaged backgrounds. We further show that these stratified scars partly reflect unequal educational re-enrollment rates and unequal employment outcomes among dropouts who do not re-enroll. Our results highlight the potential of policies targeting higher graduation rates to reduce social inequality in labor markets. Furthermore, our study suggests that social advantage serves as an important buffer against the negative financial consequences of apprenticeship dropout, even in institutional settings with strong links between credentials and labor market outcomes.