Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/96909
Authors: 
Hendricks, Lutz
Leukhina, Oksana
Year of Publication: 
2014
Series/Report no.: 
CESifo Working Paper 4733
Abstract: 
This paper estimates the effect of graduating from college on lifetime earnings. Motivated by the fact that nearly half of all college students fail to earn a bachelor’s degree, we study a model of risky college completion. The central idea is that students drop out of college mainly because they fail to complete the requirements for earning a degree. This introduces two levels of ability selection that reinforce each other. (i) In college, low ability students typically do not succeed academically and drop out. (ii) At the college entry stage, their poor graduation prospects deter low ability students from even attempting college. Taken together, the two levels of selection generate a large ability gap between college graduates and high school graduates. We calibrate the model to data for men born around 1960 and find that ability selection accounts for nearly half of the college lifetime earnings premium.
Subjects: 
education
college dropout risk
JEL: 
E24
J24
I21
Document Type: 
Working Paper

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