The Return to College: Selection Bias and Dropout Risk

62 Pages Posted: 7 May 2014

See all articles by Lutz Hendricks

Lutz Hendricks

UNC Chapel Hill; CESifo (Center for Economic Studies and Ifo Institute)

Oksana Leukhina

Federal Reserve Bank of St Louis

Date Written: April 5, 2014

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

JEL Classification: E240, J240, I210

Suggested Citation

Hendricks, Lutz and Leukhina, Oksana, The Return to College: Selection Bias and Dropout Risk (April 5, 2014). CESifo Working Paper Series No. 4733. Available at SSRN: https://ssrn.com/abstract=2432905

Lutz Hendricks (Contact Author)

UNC Chapel Hill ( email )

Chapel Hill, NC 27599
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Oksana Leukhina

Federal Reserve Bank of St Louis ( email )

P.O. Box 442
St. Louis, MO 63166-0442
United States

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