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Human Capital vs. Signaling Models

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:

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Human Capital vs. Signaling Models

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

  2. 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.

  3. 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

  4. 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

  5. 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.

  6. 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.

  7. 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.

  8. 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.

  9. 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?

  10. 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)?

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