Human Capital vs. Signaling Models University Access and High School Dropouts Kelly Bedard (2001)

Idea Tests two theories: –Human Capital Theory vs. Signaling models. –They have different predictions on university access and high school dropout rates: With constraints on access to university, greater access means: HC  Higher university enrolment rates and identical high-school drop-out rates SM  Higher university enrolment rates and higher high-school drop-out rates.

Signaling model Education is also a signaling, or screening, device for unobservable ability Reward for high school graduation: Combined effect of –human capital accumulation (acquiring skills which affect productivity) –being identified as a graduate rather than a drop-out: signaling higher ability

Signaling model… With greater university access: –Some previously constrained but relatively high-ability students leave the high-school graduate (HSG) group to become university enrolees  the skill pool of HSG is reduced  the signaling value of HSG is reduced and thus the incentive to obtain the designation is diminished  higher high school drop out rates (HSD) and skill pool of HSD increase. –HC model predicts no effect on HSD rate or skill pool

Empirical implementation Uses variation in presence (= access) of local university across regions in Variable of interest: Schooling decision of group years old (in 1968) Baseline interviews from 1968 about family characteristics, local labour markets and IQ tests.

Identification strategy The variation in university access across regions is exogenous when controlled for family characteristics and individual elements. Controls for city/suburb, individual characteristics, family characteristics and local labour market characteristics.

Findings Areas with higher university access have –higher postsecondary participation: percent higher –higher high school drop out rates: 4-31 percent higher  Increased university access might increase education dispersion and result in lower earning power for the less able.

Potential issues (1) Point estimates: –Findings for increase in high school drop out rates when access to university has a very wide range: 4 to 31 %. –Female results for % of high school dropouts seem to be sensitive to specification/type of university.

Potential Issues (2) Exogenous variation? –Variables correlated with both schooling decisions and presence of university very particular year: Movements around protests of 1968 could maybe have led more people to drop out of high school. If this effect is not the same for every region then it is a problem, and could maybe imagine that e.g. more liberal regions both had a higher presence of universities and were more influenced by this movement. Solution: –Dummy for democrat regions? –State fixed effects?

Potential issues (3) External validity: Current relevance: –Today, how many people are constrained geographically? –How big a part of their “cost function” is this constraint compared to credit constraints and limited admission? –Does it change anything? Support (at that time) for signaling model still relevant? Less relevant for current education-policies: do the point estimates transfer to relaxing other kind of constraints? Less certain that the probability of constraint is a decreasing function of ability (most able least constrained)?