College Entry, Dropout and Re-enrollment: The Role of Tuition and Labor Market Conditions

Industrial realignment in the United States, in part stemming from liberalized international trade, has motivated policymakers to encourage lifelong learning and skill retooling. In light of these discussions it is important to understand current college going behavior, with a particular focus on college entry or re-entry at older ages, which is already a nontrivial phenomenon. I estimate a dynamic stochastic discrete choice model of schooling and labor force participation decisions over the life-cycle on a sample drawn from the National Longitudinal Survey of Youth (NLSY79). Employing value function interpolation methods in solving the dynamic programming problem, I estimate the model by Maximum Likelihood. My estimates fit the observed patterns reasonably well. I then ask how enrollment behavior would change in response to alterations in people’s opportunities, including subsidies targeted at individuals already in the labor market. One such simulation shows that even a policy that fully eliminates tuition for persons with at least one year of work experience will raise the number of individuals who obtain a college degree by only 2.4%