The Macroeconomic Cost of College Dropouts
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Series
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Speaker(s)Oliko Vardishvili (University of California Irvine, United States)
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FieldMacroeconomics
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LocationTinbergen Institute Amsterdam, room 1.60
Amsterdam -
Date and time
September 05, 2024
16:00 - 17:15
Abstract
Forty percent of US college students drop out. I analyze a novel policy-relevant dropout channel: grant uncertainty across academic years that students face at college due to the opaque allocation process of grants. Using a quantitative overlapping generations equilibrium model, I analyze the impact of uncertainty regarding grants, together with uncertain academic ability and productivity shocks, on dropout rates. Grant uncertainty alone explains one-third of dropouts, disproportionately affecting economically disadvantaged high-ability students. Reducing this uncertainty improves social welfare by 2.4% through the complementarity between ability and a college degree, benefting both graduates and non-graduates by reducing skill premiums and taxation.