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Berkeley ECON 231 - Do Dropouts Drop Out Too Soon

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University of Torontodo dropouts drop out too soon 7 text.pdfA. The base modelB. DiscountingIII. Minimum School-Leaving Laws in Great Britain and IrelandIV. Empirical Approach and DataA. Measuring Returns to SchoolC. Assessing School Leaving Decisions with Subjective Well-Being MeasuresV. ResultsA. OLS and IV EstimatesB. Specification ChecksC. Present Value Gains from Additional SchoolingVI. Why do dropouts drop out?A. Education as an Investment in Human CapitalB. Self-Identity and Educational ChoiceC Hyperbolic Discounting and Educational ChoiceD Misguided Expectations and Educational Choicedo dropouts drop out too soon 7 graphs.pdfUniversity of TorontoA. The base modelB. DiscountingIII. Minimum School-Leaving Laws in Great Britain and IrelandIV. Empirical Approach and DataA. Measuring Returns to SchoolC. Assessing School Leaving Decisions with Subjective Well-Being MeasuresV. ResultsA. OLS and IV EstimatesB. Specification ChecksC. Present Value Gains from Additional SchoolingVI. Why do dropout drop out?A. Education as an Investment in Human CapitalB. Self-Identity and Educational ChoiceC Hyperbolic Discounting and Educational ChoiceD Misguided Expectations and Educational Choicedo dropouts drop out too soon 26 text.pdfUniversity of TorontoA. The base modelB. DiscountingIII. Minimum School-Leaving Laws in Great Britain and IrelandIV. Empirical Approach and DataA. Measuring Returns to SchoolC. Assessing School Leaving Decisions with Subjective Well-Being MeasuresV. ResultsA. OLS and IV EstimatesB. Specification ChecksC. Present Value Gains from Additional SchoolingVI. Why do dropouts drop out?A. Education as an Investment in Human CapitalB. Self-Identity and Educational ChoiceC Hyperbolic Discounting and Educational ChoiceD Misguided Expectations and Educational Choicedo dropouts drop out too soon 27 text.pdfUniversity of TorontoA. The base modelB. DiscountingIII. Minimum School-Leaving Laws in Great Britain and IrelandIV. Empirical Approach and DataA. Measuring Returns to SchoolC. Assessing School Leaving Decisions with Subjective Well-Being MeasuresV. ResultsA. OLS and IV EstimatesB. Specification ChecksC. Present Value Gains from Additional SchoolingVI. Why do dropouts drop out?A. Education as an Investment in Human CapitalB. Self-Identity and Educational ChoiceC Hyperbolic Discounting and Educational ChoiceD Misguided Expectations and Educational Choicedo dropouts drop out too soon 27 title.pdfUniversity of Torontodo dropouts drop out too soon 27 text.pdfA. The base modelB. DiscountingIII. Minimum School-Leaving Laws in Great Britain and IrelandIV. Empirical Approach and DataA. Measuring Returns to SchoolC. Assessing School Leaving Decisions with Subjective Well-Being MeasuresV. ResultsA. OLS and IV EstimatesB. Specification ChecksC. Present Value Gains from Additional SchoolingVI. Why do dropouts drop out?A. Education as an Investment in Human CapitalB. Self-Identity and Educational ChoiceC Hyperbolic Discounting and Educational ChoiceD Misguided Expectations and Educational Choicedo dropouts drop out too soon 27 text.pdfA. The base modelB. DiscountingIII. Minimum School-Leaving Laws in Great Britain and IrelandIV. Empirical Approach and DataA. Measuring Returns to SchoolC. Assessing School Leaving Decisions with Subjective Well-Being MeasuresV. ResultsA. OLS and IV EstimatesB. Specification ChecksC. Present Value Gains from Additional SchoolingVI. Why do dropouts drop out?A. Education as an Investment in Human CapitalB. Self-Identity and Educational ChoiceC Hyperbolic Discounting and Educational ChoiceD Misguided Expectations and Educational ChoiceDecember, 2002 Do Dropouts Drop Out Too Soon? Evidence from Changes in School-Leaving Laws Philip Oreopoulos [email protected] University of Toronto Department of Economics Abstract: This 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. Key Words: social returns to education, identity, happiness, compulsory school laws JEL Classification: I20, I21, I28 I am very grateful to staff members from the UK Data Archive, and to Steve Machin for providing me with necessary data for this project. I also thank Alan Auerbach, David Autor, Gregory Besharov, David Card, Liz Cascio, Botond Koszegi, John Quigley, Enrico Moretti, Rob McMillan, Justin McCrary, Mathew Rabin, Jesse Rothstein, Emmanuel Saez, and Jo Van Biesebroeck for many helpful comments and discussions. I am solely responsible for this paper’s contents.1I. Introduction One of the most studied relationships in economics is that between schooling and earnings. A lot of work in the last decade aims to understand whether schooling causes earnings, or whether other individual characteristics are related to both factors. One approach, adopted by Angrist and Krueger (1991) uses differences in school-entry laws to identify students dropping out with less education because they were born just after the entry cut-off date as opposed to just prior. Students that finished their schooling with fewer years in class because of these laws experienced on average 9.2 percent less in adult earnings than those dropping out later. In another study, Acemoglu and Angrist (2000) use differences in school-leaving laws across the United States and over time to identify


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