The coexistence of Degree-Premium and High-Dropout Rates in the Uruguayan Secondary Education: an Incentives Problem

Although participation rates in the educational system might look impressive for a Latin American country, educational outputs are not that great. Uruguay is characterized by educational gaps and high drop-out rates in the secondary education. In our work we first explore the returns to schooling in Uruguay. In the course of our analysis, we use quantile regression models that are more suitable than ordinary least squares (OLS) for countries where heterogeneity within the labour force in terms of earnings and the impact of individual characteristics on earnings is significant. In particular we test the hypothesis of the existence of a degree premium for those individuals that complete the secondary education (12 years of education). As we find evidence that allows us to confirm the existence of the degree premium, we make conjectures and present a possible explanation that links the evidence between the existence of degree premium, educational gaps and dropouts. The rationale is that since only the completion of the secondary degree will generate a clear economic benefit, many individuals will exit the educational system as they find difficulties in the transit along the secondary level. In other words, the completion of the entire secondary stage might be seen as a long haul race and Uruguayan youngsters end up exiting the process when they are still far from the end. To cope with the estimation problem of unobservable household or children characteristics, this investigation employs an instrumental variable (IV) strategy both for two-stage least squares (TSLS) and quantile regression (QTE).