The socioeconomic consequences of dropping out of high school: Evidence from an analysis of siblings

• I examine the effect of dropping out of high school on later life outcomes.
• I compare OLS and sibling fixed effects estimates.
• OLS and sibling fixed effects estimates reveal a strong dropout effect.
• OLS estimates are consistently higher than sibling fixed effects estimates.

There is widespread belief that dropping out of high school leads to economic hardship. This belief rests on tenuous evidence. High school dropouts likely face an increased risk of economic hardship because of differences beyond a high school diploma. In particular, dropouts are more likely to come from disadvantaged backgrounds and thus face an elevated risk of economic hardship. Using data from the National Longitudinal Study of Youth 1979 Cohort, I estimate the consequences of dropping out by comparing dropouts to their siblings who completed high school. I also present OLS regression estimates using the same data. OLS regression estimates are consistently higher than sibling fixed effects estimates with the largest discrepancy occurring between estimates of the effect of dropping out on income-to-poverty ratio. However, the sibling fixed effect estimates reveal that dropping out has an effect on economic hardship net of unobserved background characteristics that are shared by siblings. I conclude with a discussion of how recent policy shifts affect the economic standing of low-ability students and suggest avenues for future research.