I mentioned on the blog a little while ago that Chris Ryan and I had written a paper on the effect of minimum school leaving ages on earnings. I wrote it up for the SMH today. They published a rather truncated version, I’m afraid, so a fuller version is over the fold.
Leaving It Too Early
Dr Andrew Leigh
For all our rhetoric about Clever Countries and Smart States, Australia has traditionally relied more on brawn than brains. By the 1940s, the typical American student had finished year twelve. It was not until the mid-1980s that the same could be said for young Australians. Today, about one in four Australian students still fail to complete high school.
At the time they quit, most early school leavers do not think they are making a mistake. Often, they dislike their teachers, and find classes a slog. Instead, they are tempted by the â€œreal worldâ€: finding a job, earning their own wage, and spending more time with their friends.
But do dropouts drop out too soon? To answer this question, my Australian National University colleague Dr Chris Ryan and I set out to see what happened to those who were forced by minimum leaving ages to stay on at school a little longer. Comparing different school leaving ages across states, we found that those bound by the laws to stay on at school for an additional year enjoyed earnings that were on average 10 percent higher â€“ in every year of their working lives.
This is particularly striking given that our results are not driven by students who loved learning. Instead, our â€œnatural experimentâ€ can be thought of as comparing two groups of students. Students in both groups wanted to leave school as soon as possible. One group â€“ call them the â€œhappy leaversâ€ â€“ lived in a state with a low leaving age, and left as soon as they attained the minimum age. Another group â€“ the â€œreluctant stayersâ€ â€“ lived in a state with a high leaving age, and so had to complete an extra more year of school. Our experiment showed that over their lifetimes, the earnings of the stayers turned out to be significantly higher than the leavers.
A 10 percent increase in earnings from just one more year of school may seem a lot, but in fact it is similar to what has been found in other countries. Research by University of Toronto researcher Philip Oreopoulos indicates that in Britain, Canada and the United States, those compelled by minimum school leaving age laws to complete an additional year of school earn 10-14 percent more over the remainder of their lifetime.
But what about the lost wages from staying on at school? While half of all early school leavers say they want to find a job, few strike it rich. The typical earnings of a young high school dropout with 9 years of education are $5600 per year. By contrast, Chris Ryan and I found that the additional lifetime income for an Australian student from staying on at school for an extra year was over $100,000. An early school leaver must be extremely impatient in order to make dropping out look like an economically sensible decision.
If these findings are correct, it seems puzzling that any young people drop out of school. Oreopoulos suggests three possible explanations. First, students may be overly impatient, placing an inordinately high weight on getting cash in the hand (or never having to sit through a maths class again). Second, they may mispredict their future earnings, not realising the lifetime gains from staying on at school. Or third, students with low self-esteem may place a lot of weight on pleasing their peers, even at the risk of following them when they drop out. Whichever of these explanations is true, students can be made better off by a higher minimum school leaving age.Â
Today, the minimum school leaving age in NSW is 15, the same as it was in the 1940s. Over the past half-century, our society and economy have undergone radical transformations, but the school leaving age has remained unchanged. By contrast, Tasmania has for decades had a school leaving age of 16, and South Australia recently raised its school leaving age to 16. Some countries have set the bar even higher, with Belgium, Germany and the Netherlands all having a minimum school leaving age of 18.
Rather than raising the school leaving age, state governments in Queensland and Western Australia have suggested that we should require that young people either be in school or in work. If it were true that dropping out of school and finding a job was just as beneficial as staying in school, this kind of â€œlearn or earnâ€ model might make sense. But our research indicates that for a 15 year-old, learning beats earning. It is better to raise the school leaving age.
It may seem paradoxical that compelling people to stay in school can improve their life chances in the long run. Yet the evidence shows that raising the NSW school leaving age â€“ certainly to 16, and perhaps even to 17 â€“ can substantially raise the future incomes of schoolchildren who might otherwise drop out. Todayâ€™s frustrated youngsters may not be ecstatic about an increase in the school leaving age. But tomorrowâ€™s knowledge workers will.
Dr Andrew Leigh is an economist at the Australian National University. His paper with Dr Chris Ryan is available at www.andrewleigh.com.