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Journal Issue: America's High Schools Volume 19 Number 1 Spring 2009

Finishing High School: Alternative Pathways and Dropout Recovery
John H. Tyler Magnus Lofstrom

Costs of Dropping Out

Every year more than a million children leave school without a traditional high school diploma. The costs associated are large, both for the student who drops out and for society as well. Because minority and low-income students are significantly more likely than well-do-do white students to drop out of school, the individual costs fall unevenly across groups and ultimately affect important social issues, such as racial and ethnic education gaps, the income distribution, and health disparities.

Costs to the Individual
The most obvious cost to failing to complete high school is lower expected lifetime earnings. In 2006, the median annual earnings of women without a high school diploma were $13,255; those of men without a diploma were $22,151.46 The median earnings of women and men with a diploma were, respectively, $20,650 and $31,715.47 The earnings of women who drop out are thus only about 65 percent of those of female high school graduates—an annual difference of $7,395. The earnings of men who drop out are slightly less than 70 percent of those of men with diplomas—an annual difference of $9,564.

Graduating from high school does not necessarily cause these earnings differences. Because students self-select into schooling levels by the way they perceive the lifetime benefits and costs to themselves of such schooling, it may be wrong to conclude that if a randomly selected individual dropout were to complete high school, his or her earnings would increase by these amounts. But after reviewing research attempting to obtain the causal effects of education on earnings, Cecilia Rouse concludes that "the basic ‘cross-sectional' relationship (that is, the mean difference in income between those with and without high school degrees) is a fairly good approximation to the causal relationship."48 In addition, Rouse shows that relative to high school graduates, dropouts have higher unemployment rates and lower employment rates. They also work fewer weeks each year.49 Because of these less favorable employment outcomes, the estimated lifetime earnings of dropouts are $260,000 less than those of high school graduates. Rouse also shows that dropouts are less likely to benefit from employer-provided pension plans and health insurance.50

More education may also improve individuals' health in a causal manner. The observed link between low schooling levels, and poor health may be due to other factors, such as income, that are correlated with both schooling and health. Or it could be that the causal arrow runs in the other direction, with poor health preventing the full pursuit of higher schooling. David Cutler and Adriana Lleras-Muney find a clear relationship between education and health that cannot be entirely explained by labor market outcomes or family background and conclude that better health outcomes have to be included as one of the benefits of more education.51 The flip side of this link, of course, is that poorer health and higher health spending are additional costs that dropouts face.

Costs to Society
The costs of failing to graduate from high school are not limited to dropouts themselves, but also spill over to society. These social costs include lower tax revenues, greater public spending on public assistance and health care, and higher crime rates.

Because dropouts do not perform as well in the labor market as high school graduates, as measured by earnings, employment, and unemployment, they also do not contribute as much in terms of tax revenues. Rouse estimates that dropouts pay about 42 percent of what high school graduates pay in federal and state income taxes each year ($1,600 and $3,800, respectively).52 Over a lifetime, Rouse estimates, the difference in the discounted present value of federal and state income tax revenues is about $60,000.53 Given a cohort of 600,000 eighteen-year-old dropouts, these estimates suggest a yearly loss of $36 billion in state and federal income taxes.

Public assistance to dropouts is also out of proportion to their share of the population. Jane Waldfogel, Irwin Garfinkel, and Brendan Kelly report that nearly half of single mothers receiving Temporary Assistance for Needy Families (TANF) are high school dropouts and that 27 percent of all single mothers lacking a high school diploma receive TANF (17 percent of high school graduates with no further education).54 Waldfogel and her colleagues estimate that single mothers with a high school education are 24 percent less likely to be on TANF than are those who are high school dropouts.55 The authors also estimate that if all welfare recipients who were high school dropouts were high school graduates, welfare costs would fall some $1.8 billion.56 Public spending on health insurance is also estimated to be higher for dropouts. Peter Muennig estimates that over a lifetime, the discounted average public health insurance spending is $35,000 for school dropouts, compared with $27,000 for high school graduates.57

Dropouts are also greatly overrepresented in U.S. prisons. The Bureau of Justice Statistics reports that 68 percent of the nation's state prison inmates are dropouts.58 Dropouts constitute 62 percent of white inmates, 69 percent of black inmates, and 78 percent of Hispanic inmates. Although these figures represent strikingly strong relationships between education and crime, the extent of causality is unknown. For example, children who grow up in poor, inner-city neighborhoods are more likely both to drop out of school and to engage in criminal activities during the adolescent and post-adolescent years. It is clearly challenging to estimate the causal effect of education on criminal behavior.

In an influential study, Lance Lochner and Enrico Moretti find that education does causally affect individuals' propensities to engage in criminal activities, though with racial differences.59 Black male high school graduates are more than 3 percentage points less likely to be incarcerated than black dropouts; the share for white males is less than 1 percentage point. Lochner and Moretti also estimate the effect of schooling on different types of crime. They find that, on average, one additional year of schooling will reduce the murder and assault rate by close to 30 percent, motor vehicle theft by 20 percent, arson by 13 percent, and burglary and larceny by about 6 percent. They find no significant negative effect on robbery and rape.60 Their findings indicate that a 1 percent increase in male high school graduation rates could save as much as $1.4 billion a year, or up to $2,100 for each additional male high school graduate.

Students who drop out may also be less effective at parenting and may participate less often and less effectively in the nation's democratic processes. To date there is little research on these costs of school dropout. The discussion so far has dealt only with the costs—individual and social—associated with dropping out. A full social cost-benefit analysis would include potential social benefits associated with having students leave school early, such as lower public spending on education. It could also be that relatively high dropout rates improve the education of students who remain in school, especially if the dropouts were students who commanded much teacher time and energy. But almost certainly the high individual and societal costs associated with dropping out make it very hard to come up with a plausible scenario where the "benefits" of dropping out outweigh the costs.