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Do Dropouts Drop Out Too Soon? Evidence from Changes in School-Leaving Laws

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  • Philip Oreopoulos

Abstract

his paper investigates if decisions to drop out of high school are sub-optimal, and whether students benefit from policies, such as a minimum school leaving age, that oblige them to finish school beyond the time they choose on their own. I use changes in minimum school-leaving laws in Great Britain and Ireland, which were remarkably influential, to measure pecuniary and non-pecuniary gains from education. I find, similar to previous studies, students compelled to take an extra year of schooling experienced an average increase of 12 percent in annual earnings. I also find significant effects from education on health, leisure and labor activities, and subjective measures of well-being, which hold up against a wide array of specification checks. Comparing these estimates with intertemporal models of educational choice, the main conclusion of this paper is that it is very difficult to justify an optimal decision to drop out early without the presence of time inconsistent preferences, misguided expectations, or disutility from identifying with a social group that considers dropping out the norm. To prefer dropping out early, the one-year cost from attending school would have to exceed a dropout s maximum lifetime annual earnings by a factor of about six.

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Bibliographic Info

Paper provided by University of Toronto, Department of Economics in its series Working Papers with number oreo-03-01.

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Length: 63 pages
Date of creation: 11 Jul 2003
Date of revision:
Handle: RePEc:tor:tecipa:oreo-03-01

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Related research

Keywords: social returns to education; identity; happiness; compulsory school laws;

This paper has been announced in the following NEP Reports:

References

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  1. Joshua D. Angrist & Alan B. Krueger, 1990. "Does Compulsory School Attendance Affect Schooling and Earnings?," NBER Working Papers 3572, National Bureau of Economic Research, Inc.
  2. Jeff Dominitz & Charles F. Manski, 1994. "Using Expectations Data to Study Subjective Income Expectations," NBER Working Papers 4937, National Bureau of Economic Research, Inc.
  3. Ted O'Donoghue and Matthew Rabin., 2000. "Risky Behavior Among Youths: Some Issues from Behavioral Economics," Economics Working Papers E00-285, University of California at Berkeley.
  4. David Card, 2000. "Estimating the Return to Schooling: Progress on Some Persistent Econometric Problems," NBER Working Papers 7769, National Bureau of Economic Research, Inc.
  5. Matthew Rabin & Ted O'Donoghue, 1999. "Doing It Now or Later," American Economic Review, American Economic Association, vol. 89(1), pages 103-124, March.
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  7. Harmon, Colm & Walker, Ian, 1995. "Estimates of the Economic Return to Schooling for the United Kingdom," American Economic Review, American Economic Association, vol. 85(5), pages 1278-86, December.
  8. Gruber Jonathan H & Mullainathan Sendhil, 2005. "Do Cigarette Taxes Make Smokers Happier," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(1), pages 1-45, July.
  9. Stacey H. Chen, 2002. "Is Investing College Education Risky?," Labor and Demography 0202001, EconWPA.
  10. Adriana Lleras-Muney, 2002. "The Relationship Between Education and Adult Mortality in the United States," NBER Working Papers 8986, National Bureau of Economic Research, Inc.
  11. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
  12. Brunello, Giorgio & Comi, Simona & Lucifora, Claudio, 2000. "The College Wage Gap in 10 European Countries: Evidence from Two Cohorts," IZA Discussion Papers 228, Institute for the Study of Labor (IZA).
  13. Peter Gottschalk & Timothy M. Smeeding, 1997. "Cross-National Comparisons of Earnings and Income Inequality," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 633-687, June.
  14. Micklewright, J & Mark Pearson & Stephen Smith, 1989. "Has Britain an early school-leaving problem?," Fiscal Studies, Institute for Fiscal Studies, vol. 10(1), pages 1-16, February.
  15. Daron Acemoglu & Joshua Angrist, 1999. "How Large are the Social Returns to Education? Evidence from Compulsory Schooling Laws," NBER Working Papers 7444, National Bureau of Economic Research, Inc.
  16. Levhari, David & Weiss, Yoram, 1974. "The Effect of Risk on the Investment in Human Capital," American Economic Review, American Economic Association, vol. 64(6), pages 950-63, December.
  17. Lance Lochner & Enrico Moretti, 2001. "The Effect of Education on Crime: Evidence from Prison Inmates, Arrests, and Self-Reports," NBER Working Papers 8605, National Bureau of Economic Research, Inc.
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