Do dropouts drop out too soon? Wealth, health and happiness from compulsory schooling

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Abstract

This paper uses compulsory schooling laws to evaluate high school dropout decisions. The main empirical result is that lifetime wealth increases by about 15% with an extra year of compulsory schooling. Students compelled to stay in school are also less likely to report being in poor health, unemployed, and unhappy. The main conclusion is that high school aversion alone is unlikely to explain why dropouts forgo substantial gains to lifetime wealth. The results are more consistent with the possibility that adolescents ignore or heavily discount future consequences when deciding to drop out of school. If teenagers are myopic, making school compulsory or offering incentives to stay in school may help improve lifetime outcomes.

Introduction

Policymakers, educators, and parents typically view dropping out of high school as undesirable and spend considerable time and money in an effort to prevent this outcome. This view is no more apparent than from the motivation behind compulsory schooling laws. Such laws have been around for more than a hundred years, and continue to exist in virtually every industrialized country. Motivation for introducing them, or for updating them, often relates to assumptions that children who would have left school earlier are, in fact, better off from staying on.

Many social scientists view education as an investment decision. For high school students, an investment decision would involve weighing the expected rewards from obtaining a degree to the effort required in getting it. Those that dropout drop out because they detest school, lack motivation, or anticipate little reward from graduation (Eckstein and Wolpin, 1999). In this case, in the absence of positive externalities, compulsory schooling restricts choice and lowers lifetime welfare (e.g. Rickenbacker, 1974, Gatto, 2002, Machan, 2000).1

This paper uses compulsory schooling laws to evaluate dropout behavior. I estimate lifetime opportunity costs from leaving high school. Quantifying the overall consequences from dropping out offers important perspective for evaluating theories of school attainment. Knowing what dropouts give up is essential for understanding why they do it. I compare whether models that imply efficiency in early school-leaving decisions can adequately explain estimates for the total gains from staying in school, or whether alternative models that imply inefficient outcomes are better suited.

Compulsory laws are ideal instruments to analyze the efficiency of the school-choice decision because they prevent some students from leaving school early. Several previous papers have consistently documented gains to adult outcomes from compulsory schooling. Angrist and Krueger (1991) and Acemoglu and Angrist (2001) estimate (using very different methodologies) that annual adult earnings are about 10% higher for students compelled to stay a year longer in school. Harmon and Walker (1995) and Oreopoulos (2006) find about 14% higher earnings from school compulsion in the UK. Other studies have examined the impact of compulsory schooling on non-pecuniary outcomes. Lochner and Moretti (2004) estimate that compulsory schooling lowers the likelihood of committing crime or ending up in jail. Lleras-Muney (2005) estimates an additional year of compulsory schooling substantially lowers the probability of dying among elderly people. And Black, Devereux, and Salvanes (2004) find compulsory schooling reduces the chances of teen pregnancy in the U.S. and Norway.

None of these papers focus on what their results imply about dropout behavior. What I aim to do here is to discuss how compulsory schooling laws can be used to learn more about school attainment. I demonstrate consistency across countries in finding similar effects of compulsory schooling for the U.S., Canada, and the UK. The cross-country comparison provides an opportunity to examine estimates under different circumstances, different institutions, and for different time periods.

The main empirical finding suggests that one year of compulsory schooling increases average lifetime spending by 15%. Students with additional schooling are also less likely to report poor health, being depressed, looking for work, being in a low-skilled manual occupation, and being unemployed. Adults with more compulsory schooling are also more likely to report being satisfied overall with the life they lead.

The main conclusion of this paper is that it is very difficult to reconcile substantial returns to compulsory schooling with an investment model of school attainment. The results are more consistent with the possibility that many adolescents ignore or heavily discount future consequences when deciding to drop out of school. This explanation is also consistent with recent studies in neurology and psychology that suggest adolescents are particularly predisposed to myopic behavior. If teenagers are myopic, making school compulsory or offering incentives to stay in school may improve lifetime welfare.

Section snippets

A simple model for describing dropout decisions

In this section, I explore a simple model for describing high school attainment. The model provides a useful backdrop to the findings and subsequent discussion.

Empirical methodology and data

The main regression model analyzes how compulsory schooling affects subsequent outcomes. Since changes in these laws vary by region (state, province, Britain/N. Ireland) and time, not at the individual level, all initial data extracts, with individual observations, are first aggregated into cell means. This procedure explicitly removes within region heterogeneity. When the sample includes both males and females, the data are also categorized into cells by gender. The U.S. sample also groups

The effect of compulsory schooling laws on school attainment

Table 1 presents the first-stage effects of the school-leaving age changes on educational attainment, specified as in Eq. (10), and the corresponding reduced form effects of the school-leaving age on earnings. Column 1 shows raising the school-leaving age increases the average number of years of completed schooling. For the full US sample, years of schooling is 0.24 years higher for those that faced a dropout age of 14 compared to those that faced a smaller dropout age, or none at all. Average

Earnings

The estimates for the effects of compulsory schooling on earnings are shown in Table 2. The instrumental variable results corresponding to the first and second stages in columns 1 and 2 of Table 1 are shown here in column 2. All regressions include fixed effects for birth cohort, region, survey year, gender, and a quartic in age. The U.S. results also include a dummy variable for race and state controls for fraction of state living in urban areas, fraction black, in the labor force, in the

Discussion

Changes to compulsory schooling laws help identify what dropouts would have earned had they stayed in school longer. This paper finds that the typical dropout born in the middle of the 20th century in the U.S., Canada, or the UK, missed out on an opportunity to increase lifetime spending by more than 10%.13

Conclusion

In this paper I discuss welfare implications for the empirical finding that the opportunity costs of dropping out are substantial. I use influential changes in minimum school-leaving laws in the U.S., Canada, Britain and Ireland to estimate lifetime gains to would-be dropouts from staying on. These changes provide ideal natural experiments to explore dropout behavior because they compel some students to continue school beyond the level they would choose on their own. I find significant lifetime

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  • Cited by (0)

    Conference participants at the NBER Summer Institute, IZA/SOLE Transatlantic meetings, and seminar participants at Berkeley, LSE, the Chicago Federal Reserve, Royal Holloway, Duke, McGill, Queens, Wharton, and the Universities of Toronto, British Columbia and Guelph provided very helpful discussion. I am especially thankful to George Akerlof, Alan Auerbach, David Autor, Gregory Besharov, David Card, Liz Cascio, Stacey Chen, Peter Diamond, David Laibson, Botond Koszegi, John Quigley, Marco Manacorda, Enrico Moretti, Rob McMillan, Justin McCrary, Costas Meghir, Mathew Rabin, Jesse Rothstein, Emmanuel Saez, Aloysius Siow, Alois Stutzer, Jo Van Biesebroeck, Ian Walker, and two anonymous referees for many helpful comments and discussions. I am solely responsible for this paper's contents.

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