Building the Stock of College-Educated Labor

Half of college students drop out before completing a degree. Over the past few decades, the share of young workers with a college degree has risen quite slowly. Two demographic trends further depress growth in the stock of skilled labor: the well-educated baby boomers are exiting the labor force as increasing numbers of Blacks and Hispanics with low education levels are entering. This paper establishes a causal link between college costs and the share of workers with a college education. I exploit the introduction of two large tuition subsidy programs, finding that they increase the share of the population that completes a college degree by three percentage points. The effects are strongest among women, with white women increasing degree receipt by 3.2 percentage points and the share of nonwhite women attempting or completing any years of college increasing by six and seven percentage points, respectively. A cost-benefit analysis indicates that tuition reduction can be a socially efficient method for increasing college completion. However, even with the offer of free tuition, a large share of students continue to drop out, suggesting that the direct costs of school are not the only impediment to college completion