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The purpose of this paper is to provide a better understanding of the links between labor market conditions and academic performance by disentangling the effects of unemployment. The contribution of this study is, therefore, threefold: first, it provides new evidence on the link between labor market conditions and educational decisions; second, it quantifies separately the two separate effects of unemployment on academic performance at age 15; and third, it analyses heterogeneous effects of the “family” and “local labor market” – proxied through the unemployment rate of the school community – effects.

The analysis of the impact of unemployment on academic performance is performed through hierarchical linear regressions.

The results show that academic performance at age 15 is affected by labor market conditions, and, at the same time, previous performance determines future educational decisions. Thus, these results highlight the sensitivity of students’ educational decisions and academic performance to shifts in the labor market.

This suggests that strategies aimed at reducing early school dropout rates should not be restricted solely to the education system. In other words, school failure is not only dependent on schools and, hence, on education policies.

This paper contributes to the existing literature by providing new evidence on the relationship between short-term labor market dynamics and academic performance. More specifically, this paper represents a significant step forward in comparison to the previous literature as it has provided responses to three key questions faced by countries with high unemployment and high early school dropout.