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Title: The Effects of School Quality on the Youth Labor Market

Citation Type: Working Paper

Publication Year: 2000

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Abstract: How does the quality of education received by children affect their performance when they enter the labor market? This paper is an attempt to answer this question for new entrants to the labor market over a period from 1970 to the mid 1990s. In so doing we try to pull together some strands in the literature on both education and the labor market. We also hope to shed light on some of the policy concerns lurking in the background of the relevant literature. Most previous studies of the effect of school quality on the labor market, beginning with Card and Krueger (1992), measure quality with inputs (school expenditures, teacher-pupil ratios). We focus instead on an output measure - test scores. Thus our work is also related to the literature on 'education production functions,' which tries to estimate a link between education inputs and outputs. Both the school inputs-labor market and the education production literatures are unsettled.2 But they also stand in uncomfortable juxtaposition. According to Eric Hanushek (1996) the central tendency of hundreds of education production function studies is that there is no reliable connection between school inputs and outputs. According to Card and Krueger (1996) there is usually a positive relation between school inputs and earnings. While one or both of these results may be wrong, 3they raise an obvious question: 2"How is it that principals and teachers can effectively use school resources to produce improvement in labor market outcomes but fail to use extra resources to produce gains in academic achievement?" (Burtless, 1996) Our results do not directly resolve this conundrum. But they provide an important perspective: academic achievement is also valued in the labor market. And, in a sense to be described, this link is the more important empirically. These academic debates mirror larger concerns about the quality of public education and stagnating incomes of high school graduates. In the case of public education, the broad trend since the late 1960s has been first declining and then stagnant test scores in the face of a substantial increase in per pupil expenditures. The worrisome labor market trends begin about a decade later and entail a significant fall in real earnings of those not going beyond high school. The timing raises another obvious question: did the decline in school performance contribute to the decline in returns to completing high school? While the reduction in returns to high school completion is too pervasive for school performance to be a major cause, our results suggest that there is some link between the two. The first contribution of this paper is to describe the relation between changes in school system performance and changes in earnings for those who enter the labor force without going on to college4. By focusing on this group we hope to capture a ‘pure’ effect of school quality that is undistorted by subsequent college education or on the job training and experience. Accordingly, we analyze 3labor market outcomes for these workers only in the first few years after their entry into the labor force. We have a ‘view’ about what forces other than school quality affect the earnings of these new entrants, and our empirical analysis incorporates it. While this aspect of the empirical work is not a major focus of the paper some of the results we obtain seem interesting enough to warrant further scrutiny. The decision to enter the labor force or go on to college can itself be affected by school quality. Accordingly, we examine that possibility empirically. Finally, we analyze some aggregate outcomes: specifically, is the growth in employment related to school quality? More specifically, do employers tend to migrate to areas with improving school systems? Our unit-of-analysis is the state, because this is the political entity constitutionally responsible for public education in the U. S. (and public schools enroll around 90 per cent of all students). Consequently, the questions we try to answer are about state cross-sections: how are changes in the relative performance of a state’s schools related to the relative changes in outcomes for the schools’ graduates? The next section describes the data we use and how we use them. This is followed by our results. In a nutshell, these are that declining school quality is associated with lower wages for new labor market entrants, reduced ‘job quality’ and a lower probability of college entrance. There is weak evidence that on-the-job training or experience dilutes some of the wage effect. We also find that total 4employment – not just the employment of young workers – is reduced when school quality declines.

Url: http://hdl.handle.net/10419/262564

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Authors: Peltzman, Sam ;; Murphy, Kevin M

Series Title: The Effects of School Qualityon the Youth Labor Market

Publication Number: 162

Institution: University of Chicago, Center for theStudy of the Economy and the State

Pages: 1-41

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Data Collections: IPUMS USA

Topics: Education, Labor Force and Occupational Structure

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