Basic Skills and the Earnings of Dropouts

Abstract

This paper quantifies the extent to which basic skills matter for young dropouts entering today's labor market. Estimates indicate that for dropouts who were age 16-18 when they took a high stakes test in the late 1990s, a standard deviation increase in scores is associated with earnings that are 9 percent higher in the first three years in the labor market. These results are the first direct evidence that young dropouts in today's economy are not relegated to jobs where cognitive skills are not rewarded, and they stress the importance of skill acquisition for students who may eventually drop out.

Keywords: Dropouts, Low-Shilled Workers, Returns to Skills

JEL Classification: L20, L28, J240