We estimate the effect of high school graduation on participation in criminal activity accounting for endogeneity of schooling. We begin by analyzing the effect of high school graduation on incarceration using Census data. Instrumental variable estimates using changes in state compulsory attendance laws as an instrument for high school graduation uncover a significant reduction in incarceration for both blacks and whites. When estimating the impact of high school graduation only, OLS and IV estimators estimate different weighted sums of the impact of each schooling progression on the probability of incarceration. We clarify the relationship between OLS and IV estimates and show that the 'weights' placed on the impact of each schooling progression can explain differences in the estimates. Overall, the estimates suggest that completing high school reduces the probability of incarceration by about .76 percentage points for whites and 3.4 percentage points for blacks. We corroborate these findings using FBI data on arrests that distinguish among different types of crimes. The biggest impacts of graduation are associated with murder, assault, and motor vehicle theft. We also examine the effect of drop out on self-reported crime in the NLSY and find that our estimates for imprisonment and arrest are caused by changes in criminal behavior and not educational differences in the probability of arrest or incarceration conditional on crime. We estimate that the externality of education is about 14-26% of the private return to schooling, suggesting that a significant part of the social return to education comes in the form of externalities from crime reduction.

The Effect of Education on Crime: Evidence from Prison Inmates, Arrests, and Self-Reports

/pdf/the-effect-of-education-on-crime-evidence-from-prison-3bh99uvrwa.pdf

The Effect of Education on Crime: Evidence From Prison Inmates, Arrests, and Self-Reports

increases wages by directly increasing the worker's productivity. This learning explanation is usually associated with human capital theory. However, it seems unlikely that learning explains all the wage differences associated with schooling and work history. Better-educated workers are not a random sample of workers: they have lower propensities to quit or to be absent, are less likely to smoke, drink or use illicit drugs, and are generally healthier. It is unlikely that employers make full use of differences in propensities to quit or to be absent or sick when hiring workers. These characteristics are often not directly observed, and the Americans with Disabilities Act precludes firms from using either poor health or the likelihood of future sickness as a hiring criterion unless it is directly related to job performance.' However, if low levels of education are associated with these unfavorable employee characteristics, and employers are allowed to take education into account when hiring workers, we would expect employers to favor better-educated workers as a means of reducing their costs of sickness and job turnover. In turn, students will take these hiring criteria into account when deciding how long to stay in school. Students will choose a length of schooling to "signal" their ability to employers, and employers will demand a minimum level of schooling

https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.9.4.133

Human Capital vs. Signalling Explanations of Wages

The theory of market signaling and screening is a cornerstone of the new economics of information. The last two and a half decades have not only witnessed a series of remarkable theoretical developments but also a wide range of applications. This essay examines the key theoretical issues and explores their use in three major fields: industrial organization, labor, and finance. Considerable emphasis is placed on attempts to test the theory in each of these fields.

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Silver Signals: Twenty-Five Years of Screening and Signaling

https://www.nber.org/system/files/working_papers/w9588/w9588.pdf

Are there civic returns to education

Under the educational sorting hypothesis a state compulsory school attendance law will increase the educational attainment of high-ability workers who are not directly affected hy the law. Under the human capital hypothesis such laws affect only those individuals whose hehavior is directly constrained. We find that compulsory attendance laws do increase enrollment rates in age groups they do not affect directly. Thus, our results contradict the human capital hypothesis and are consistent with the sorting hypothesis. I. INTRODUCTION The last decade has seen considerable debate between supporters of the human capital and sorting models of education. The former assert that the effect of education on wages reflects increased productivity. The latter maintain that it reflects, at least in part, correlation between education and unobserved ability. Workers use education to signal their ability, while employers use education to screen workers. Despite the importance of the debate, no fully convincing tests of the hypotheses have been developed. In fact, many members of the profession maintain (at least privately) that these hypotheses cannot be tested against each other and that the debate must therefore be relegated to the realm of ideology. In this paper we show that the models can be tested against each other by examining the effects of state compulsory school attendance laws. We show that under the human capital hypotheis, such laws will affect the educational attainment only of those who in the absence of the law would have left school prior to the minimum school leaving age. On the other hand, under the sorting hypothesis the effects of the law will percolate through the system, increasing educational attainment even among workers not directly constrained by the law. Our results are consistent with the predictions of the sorting model.

http://faculty.smu.edu/Millimet/classes/eco7321/papers/lang%20kropp.pdf

David Kropp

Papers

Human Capital Versus Sorting: The Effects of Compulsory Attendance Laws