| Abstract: |
We use a large, rich Canadian micro-level dataset to examine the channels
through which family socio-economic status and unobservable characteristics
affect children's decisions to drop out of high school. First, we document the
strength of observable socio-economic factors: our data suggest that teenage
boys with two parents who are themselves high school dropouts have a 16%
chance of dropping out, compared to a dropout rate of less than 1% for boys
whose parents both have a university degree. We examine the channels through
which this socio-economic gradient arises using an extended version of the
factor model set out in Carneiro, Hansen, and Heckman (2003). Specifically, we
consider the impact of cognitive and non-cognitive ability and the value that
parents place on education. Our results support three main conclusions. First,
cognitive ability at age 15 has a substantial impact on dropping out. Second,
parental valuation of education has an impact of approximately the same size
as cognitive ability effects for medium and low ability teenagers. A low
ability teenager has a probability of dropping out of approximately .03 if his
parents place a high value on education but .36 if their education valuation
is low. Third, parental education has no direct effect on dropping out once we
control for ability and parental valuation of education. Our results point to
the importance of whatever determines ability at age 15 (including,
potentially, early childhood interventions) and of parental valuation of
education during the teenage years. We also make a small methodological
contribution by extending the standard factor based estimator to allow a
non-linear relationship between the factors and a covariate of interest. We
show that allowing for non-linearities has a substantial impact on estimated
effects. |