Sub-Prime Education
Over at Cato Unbound, I praise Murray for highlighting the fact that many “investments” in education end in foreclosure – also known as “dropping out”:
[L]abor economists normally estimate the return to completed education. It only takes a small drop-out rate to drastically reduce the expected return of trying to complete a year of school.
If the rate of return for a completed year of education is 10%, but 6%
of students who start a year don’t finish (and waste a year of their
lives plus tuition), the expected rate of return is only 3.4%! If
the marginal student is less likely to finish than the average student,
the effect is even more drastic.
I conclude:
Murray’s critics can’t dismiss him merely by waving around standard
estimates of the return to education. One of Murray’s main points is
that for many students, the “standard” return is just a honey trap.
My point seems too obvious for labor economists who estimate the return to education to have overlooked. But they’ve missed the obvious before…
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