A number of studies have examined the impact of local labor market conditions on school dropout. However, none of them have considered the role of the industry structure. We construct data for a panel of Spanish regions and identify the effect of local labor markets using a variation of the share of employment by industry across regions and over time. In order to control for the huge structural and conjunctural heterogeneity across Spanish regions in the school dropout rate, we use a fixed-effects model with region specific slopes. We run separate regressions for boys and girls. We find a sizable impact of the industry structure and observe that in markets with a higher share low-skill employment the school dropout rate is significantly larger, though the industries affecting boys and girls are different. Our results suggest that the supply of skilled employment in the economy may allow to keep an important share of school dropouts in the school.
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