Ability, Parental Valuation of Education, and the High School Dropout Decision

Abstract

The probability of dropping out of high school varies considerably with parental education. Using a rich Canadian panel data set, we examine the channels determining this socioeconomic status effect. We estimate an extended version of Carneiro, Hansen and Heckman (2003)’s factor model, incorporating effects from cognitive and noncognitive ability and parental valuation of education (PVE). We find that cognitive ability and PVE have substantial impacts on dropping out and that parental education has little direct effect on dropping out after controlling for these factors. Our results confirm the importance of determinants of ability by age 15 but also indicate an important role for PVE during teenage years.