The Economic Value of Breaking Bad: Misbehavior, Schooling and the Labor Market

Prevailing research argues that childhood misbehavior in the classroom is bad for schooling and, presumably, bad for labor market outcomes. In contrast, we argue that some childhood misbehavior represents underlying socio-emotional skills that are valuable in the labor market. We follow work from psychology and categorize observed classroom misbehavior into two underlying latent factors. We then estimate a model of educational attainment and earnings outcomes, allowing the impact of each of the two factors to vary by outcome. We find that one of the factors, labeled in the psychological literature as externalizing behavior (and linked, for example, to aggression), reduces educational attainment yet increases earnings. For men, it increases wages, while for women it increases hours. Un- like most models where skills that increase human capital through education also increase earnings, our findings illustrate how some socio-emotional skills can be productive in some economic contexts and not only unproductive, but counter-productive in others. Using a task model, we extend our results to show heterogeneity in returns for males, but not for females. We also find that different kinds of secondary schools exhibit different externalizing penalties, suggesting the tasks schools emphasize can affect how externalizing behavior interacts with education.