The Return to College: Selection Bias and Dropout Risk

Lutz Hendricks and Oksana Leukhina

No 4733, CESifo Working Paper Series from CESifo

Abstract: This paper estimates the effect of graduating from college on lifetime earnings. Motivated by the fact that nearly half of all college students fail to earn a bachelor’s degree, we study a model of risky college completion. The central idea is that students drop out of college mainly because they fail to complete the requirements for earning a degree. This introduces two levels of ability selection that reinforce each other. (i) In college, low ability students typically do not succeed academically and drop out. (ii) At the college entry stage, their poor graduation prospects deter low ability students from even attempting college. Taken together, the two levels of selection generate a large ability gap between college graduates and high school graduates. We calibrate the model to data for men born around 1960 and find that ability selection accounts for nearly half of the college lifetime earnings premium.

Keywords: education; college dropout risk (search for similar items in EconPapers)
JEL-codes: E24 I21 J24 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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Working Paper: The Return to College: Selection Bias and Dropout Risk (2011)
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