Three-quarters of students currently stay to year 12, and most of them benefit from higher earnings and better job prospects as a result. But this doesnâ€™t mean the remaining quarter would enjoy these same outcomes if they too stayed on, for the more we extend schooling, the deeper we delve down the ability pool.
The Australian Council for Educational Research finds that, far from benefiting from more education, low ability students lose from it. They increase their unemployment risk by three percentage points and reduce their earnings by 5 per cent by staying at school for two additional years. They are better off leaving after year 10 and getting a job.
This is the ACER report Saunders is referring to, which is mostly OLS (its IV stratagy uses instruments I find pretty unconvincing). By contrast, mostÂ published economic research on this topic finds large and positive wage returns for dropoutsÂ when schooling is instrumented using school leaving laws. In other words, the average across-the-board wage gain from another year of schooling is large, but so is theÂ wage gainÂ enjoyed by a child who is forced to stay on at school for a year byÂ a compulsory schooling law. In the Australian case, here’s the abstract of a paper that Chris Ryan and I have forthcoming in the Economics of Education Review:
Estimating Returns to Education Using Different Natural Experiment TechniquesÂ
We compare three quasi-experimental approaches to estimating the returns to schooling in Australia: instrumenting schooling using month of birth, instrumenting schooling using changes in compulsory schooling laws, and comparing outcomes for twins. With annual pre-tax income as our measure of income, we find that the naÃ¯ve (OLS) returns to an additional year of schooling is 13%. The month of birth IV approach gives an 8% rate of return to schooling, while using changes in compulsory schooling laws as an IV produces a 12% rate of return. Finally, we review estimates from twins studies. While these studies have tended to estimate a lower return to education, we believe that this is primarily due to the better measurement of income and schooling in our dataset. Australian twins studies are consistent with our findings insofar as they find little evidence of ability bias in the OLS rate of return to schooling. Our estimates of the ability bias in OLS estimates of the rate of return to schooling range from 9% to 39%. Overall, our findings suggest the Australian rate of return to education, corrected for ability bias, is around 10%, which is similar to the rate in Britain, Canada, the Netherlands, Norway and the United States.
The person I think is most on-the-ball on this issue is Phil Oreopoulos, of the University of Toronto. Over the fold, I’ve pasted his conclusion, from a new chapter entitled Would More Compulsory Schooling Help Disadvantaged Youth? Evidence From Recent Changes to School-Leaving Laws.
This paper uses recent experiences in raising the school leaving age to 17 and 18 in order to assess whether such policies can increase school attainment, and can improve career outcomes. The results suggest that recent and more restrictive compulsory schooling laws reduced dropout rates, increased college enrollment, and improved several social economic indicators. Some caution is warranted, because focusing on more recent law changes leads to less precision, and the results appear to be driven mostly from Hispanics (born in the U.S.) obtaining more schooling. However, the overall estimated effects are quite consistent with previous studies and suggest that compulsory high school at later ages can benefit disadvantaged youth.
States that increased the school leaving age above 16 witnessed an increase in average years of schooling for 20-29 year-olds by approximately 0.13 years, while high school dropout rates fell by about 1.4 percentage points. Raising the age limit also increased post-secondary school attendance by about 1.5 percent, even though postsecondary school is not compulsory. This finding perhaps indicates that would-be dropouts reconsider post-secondary options after they complete, or come close to completing, a high school degree.
Among students who were affected by the more restrictive laws, I estimate that additional compulsory schooling significantly improved their early career outcomes by lowering (on average) the likelihood of unemployment, and by increasing earnings. Furthermore, these individuals were less likely to fall below the poverty line, and were also less likely to receive welfare. Exceptions, leniency, and weak consequences for truancy substantially weakened the effectiveness of these laws of increasing school attainment. Exceptions may be desirable, since some students would clearly not benefit from staying in school. The results in this paper do not determine whether those students for whom exceptions were made exhibit gains from being forced to stay. While allowing exceptions is probably necessary, the results point to the need for more resolve in cases where students begin to display signs that they are disengaging from high school.
Ideally, compulsory schooling laws would need only exist â€˜on the booksâ€™ if students wouldnâ€™t want to leave unless their friends leave, and most students accept the established norm not to leave before the minimum possible age; in a cyclical pattern of peer influence, students who stay would encourage struggling students to do likewise, thus virtually eliminating drop outs before graduation Greater initial enforcement may help establish an acceptance amongst youth that they are expected to stay in school, therefore limiting the need to enforce such laws in the future. Students may also find it easier to accept staying if schools would offer more curriculum choice (such as traitbased training), as some governments have already done (for example, in the province of Ontario, Canada).
Overall, the results presented in this paper speak in favor of supporting an increase of the school leaving age to 17 or 18. Raising the school leaving age may offer an effective and affordable means to increase education attainment among the least educated, thus improving these individualsâ€™ subsequent employment circumstances and earnings potential.