High School: Don't Bother to Graduate [UPDATE--my error]
By Arnold Kling
I show that evidence from cross-city comparisons is remarkably consistent with recent findings from aggregate time series data. Both designs provide support for three key conclusions: (1) workers with below high school education are perfect substitutes for those with a high school education; (2)”high school equivalent” and “college equivalent” workers are imperfect substitutes; (3) within education groups, immigrants and natives are imperfect substitutes. Together these results imply that the impacts of recent immigrant inflows on the relative wages of U.S. natives are small.
This is from his prestigious Ely Lecture at the American Economic Association meetings early this year.
What struck me was the first finding, that workers with high school education are perfect substitutes for workers with less education. Although that finding may help prove the point that Card is making here, it is a finding that otherwise will cause lots of mischief.
[UPDATE: the first commenter points out my error. “perfect substitutes” does not mean that they can substitute one for one. So high school graduates could earn more than dropouts and still be perfect substitutes for one another.] –It says that the value added of finishing high school is zero (unless you go on to college). [UPDATE–this is wrong. In Card’s sample, high school graduates earned about 20 to 25 percent more than dropouts, depending on the year of observation.]
–It implies that the linear “earnings function” in which wage rates rise monotonically with years of schooling is bogus. [UPDATE–this is probably wrong also. But if there is a monotonic earnings function, then treating all dropouts as identical is a potential source of noise in Card’s data.]
–It raises questions about the validity of the claim of Claudia Goldin and Lawrence Katz that early adoption by the United States of mass high school education greatly improved the productivity of our labor force. [UPDATE–this is wrong, but it would suggest that the relative supply of dropouts and high school graduates does not affect their relative wages]
I thought that the conventional wisdom was that finishing high school makes a difference. I thought that there was even a “sheepskin” effect from completing the last month of high school. It seems to me that Card’s finding of perfect substitutability between high school graduates and workers with less education should have sent shock waves through the economists at the AEA. Maybe that is what happened, and I just missed it because I wasn’t there. [UPDATE: Again, this is wrong]