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

  • Philip Oreopoulos

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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File URL: http://www.economics.utoronto.ca/public/workingPapers/UT-ECIPA-OREO-03-01.pdf
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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
Contact details of provider: Postal: 150 St. George Street, Toronto, Ontario
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  1. Joshua Angrist & Alan Krueger, 1990. "Does Compulsory School Attendance Affect Schooling and Earnings?," Working Papers 653, Princeton University, Department of Economics, Industrial Relations Section..
  2. David Card, 2000. "Estimating the Return to Schooling: Progress on Some Persistent Econometric Problems," NBER Working Papers 7769, National Bureau of Economic Research, Inc.
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  4. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
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  8. Jonathan Gruber & Sendhil Mullainathan, 2002. "Do Cigarette Taxes Make Smokers Happier?," NBER Working Papers 8872, National Bureau of Economic Research, Inc.
  9. 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.
  10. O'Donoghue, Ted & Rabin, Matthew, 1997. "Doing It Now or Later," Department of Economics, Working Paper Series qt7t44m5b0, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  11. J. Dominitz & C. F. Manski, . "Using expectations data to study subjective income expectations," Institute for Research on Poverty Discussion Papers 1050-94, University of Wisconsin Institute for Research on Poverty.
  12. Daron Acemoglu & Joshua Angrist, 1999. "How Large are the Social Returns to Education? Evidence from Compulsory Schooling Laws," Working papers 99-30, Massachusetts Institute of Technology (MIT), Department of Economics.
  13. Ariel Rubinstein, 1987. "Similarity and Decision-Making Under Risk (Now published in Journal of Economic Theory, 46 (1988), pp.145-153.)," STICERD - Theoretical Economics Paper Series 162, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  14. 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).
  15. 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.
  16. 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.
  17. Stacey H. Chen, 2002. "Is Investing College Education Risky?," Labor and Demography 0202001, EconWPA.
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