Abstract
This paper models the university-to-work transition in a stochastic dynamic environment, where students may study and work simultaneously. Student employment decisions depend on academic achievement, labor market opportunities, and expectations about the future. Estimation of the structural model using a unique panel data set with exogenous variation in study grant threshold levels reveals that some student employment has a positive impact on academic achievement, while too much has a negative impact. Abilities and preferences are important determinants of academic success. Students with higher academic abilities have significantly lower dropout rates, while students with higher consumption value of university attendance tend to have a higher probability of graduating, but spend longer time to graduation. These academic outcomes are not easily amendable by tilting study grants towards students who work less.
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