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A new economic theory on high school dropouts: Some kids just know the odds are against them.

Mar 24, 2016

Education is one of the best ways to get ahead in America. So, why do so many young people from poor backgrounds drop out? An economic paper published this month by the Brookings Institution suggests one possible answer, and it has nothing to do with grades or test scores. Maybe, for kids who grow up poor, with evidence of inequality all around them, dropping out of school just seems like the rational choice. 

It should be the opposite. Most economists would say, kids who start out at the bottom of the economic heap should have the incentive to get as much education as possible. Many economists believe the problem really comes down to skills. Young people trying to climb up out of poverty want to be highly educated, the thinking goes. They just don't get the right skills and training along the way. In this model, the education system itself is where the problem occurs, and that's where the fix is needed.

But the new Brookings paper by economists Melissa Kearney and Philip Levine (who we previously mentioned here) suggests the problem lies elsewhere.

Kearney and Levine analyzed graduation rates across different states based on economic inequality. What they found is in states with high inequality, the return on investment for education was lower for kids who start out poor. Meaning: Even when poor kids do pursue an education, it's harder to get ahead in places where inequality is already high. And, perhaps not surprisingly at this point, Kearney and Levine conclude that boys in particular are less likely to finish high school in states with high inequality. 

Here's Kearney with a brief explanation of the study and its findings: 

One important part of their findings is that the connection between an area's level of economic inequality and its high school dropout rate exists regardless of the academic skills of the kids themselves. So, if you have two kids with the same level of academic skill, but who live in different states, the kid in the state with higher inequality will be more likely to drop out. 

Here's the explanation from Brookings

Digging into reasons students themselves give for dropping out, they find that low-income students from more unequal places are more likely to give up on their educational pursuits. Surprisingly, survey evidence shows that academic performance does not have as large an impact on low-income students in high inequality states: 51 percent of dropouts in the least unequal states reported that they dropped out because they were performing poorly, as compared to only 21 percent of students who dropped out in the most unequal states.

The finding suggests that economic despair could play an important role: if a student perceives a lower benefit to remaining in school, then he or she will choose to drop out at a lower threshold of academic difficulty. They also note that while the wage premium of completing high school should reduce the dropout rate, household income inequality has an offsetting negative effect.

So, where does Michigan rank in all of this? Brookings created an interactive map showing each state's level of inequality along with the percentage of kids in that state who took more than four years to complete high school. Michigan is kind of in the middle somewhere. But inequality isn't spread evenly across the state, so in areas with higher inequality within Michigan, it's possible the effects are more pronounced.

This is one of the first big economic studies to look at how an area's inequality might factor into graduation rates. But the findings are significant, and they suggest the need for a different policy approach than what many states are currently doing. If inequality itself is convincing kids not to pursue their education, maybe the problem isn't the schools. It's the economy.