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 1968. • Variable of interest: Schooling decision of group 14-19 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: 10-15 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. • 1968 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)?