Essays on the Economics of Education

Kendall J Kennedy, Purdue University


This dissertation is composed of three independent chapters in the field of the economics of education. The first chapter studies the impact of grade retention on a broad group of conventional estimation strategies in the economics literature. The second chapter studies the effects of a widespread negative incentive policy on educational choice. The third chapter studies the effects of the same policy on teen behavioral and health outcomes. The first chapter investigates how the high prevalence of grade retention in the United States causes bias in a wide variety of conventional estimation strategies. Over the past four decades, ninth grade repeating has increased four-fold. Despite its prevalence, few economists have attempted to account for grade repeating when estimating returns to education and experience. I document the rise in grade repeating and show that 10% of the increase in ninth grade repeating can be attributed to changes in compulsory schooling laws (CSLs). I show that, because CSLs affect both grade repeating and educational attainment, CSL-based instrumental variables estimates of the returns to education are biased by up to 38%. Additionally, grade repeating causes endogenous measurement error in potential labor market experience. Solely through this measurement error, I show that the residual black-white wage gap is overstated by 10%, the wage returns to a GED relative to a high school diploma are understated by 15%, and the labor supply gap between GED recipients and high school graduates is overstated by 33%. The second chapter studies how No Pass, No Drive policies affect teen educational choices. Since 1988, 27 states have introduced No Pass, No Drive laws, which tie a teenager’s ability to receive and maintain a driver’s license to various school-related outcomes – most commonly, enrollment and attendance. Truancy-Based No Pass, No Drive policies target only attendance – teens that fail to meet a minimum attendance requirement lose their driver’s license. However, these policies allow students to drop out of school without facing this penalty. These policies increase the annual dropout rate by between 32 and 45 percent (1.4 to 2 percentage points). Enrollment-Based No Pass, No Drive policies, the largest group of policies, which target both enrollment and attendance, have negligible effects on dropout rates, but decrease the Averaged Freshman Graduation Rate (AFGR) by more than one percentage point. However, this lower graduation rate stems from students delaying their dropout decision by up to two years. As a result, these students are retained in the ninth and tenth grades, increasing ninth grade enrollment by 2.8 percent relative to eighth grade enrollment the year prior; this causes an artificial reduction in the graduation rate, rather than a reduction in the true likelihood that a student will graduate. The third chapter studies how No Pass, No Drive policies affect teen health and labor outcomes. Using difference-in-differences estimation, we identify the causal effect of these policies on teen behavioral outcomes – teen births, traffic fatalities, and teen employment. We find that the largest group of NPND polices cause a small increase in teen births, with large effects on black teen births (6 percent) and hispanic teen births (21 percent). These policies also cause a reduction in teen-involved fatal traffic accidents by 3 percent, with larger effects for white teens (15 percent). This is caused by the revocation of driver's licenses, as the reduction in fatal traffic accidents is constant during and outside of school hours, and is larger (12 percent overall) in later years as enforcement technology improved. NPND polices cause a shift in teen employment – overall teen employment rates are not affected, but white teen employment decreases due to a 1 percentage point increase in white school enrollment. This is offset by a 5 percentage point increase in black teen employment, where black teens fill the new job openings created by white teens enrolling in school. Our results demonstrate that increasing school retention and decreasing teen drivers' licenses reduce fatal traffic accidents and increase teen births, and we provide suggestive evidence of existing racial frictions in youth labor markets, which can be reduced by lowering dropout rates.




Bond, Purdue University.

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