Should young people be made to stay on at school longer?

A commonly stated goal of government policy is to increase the number of years of schooling accumulated by young people, either by increasing the retention rate to Year 12 or by lifting the mandatory school-leaving age.

In Western Australia, for example, the state government plans to increase the minimum age at which young people can leave school from 15-years-old to 17 by 2008. The thinking behind such changes is that the extra years of schooling they receive will improve employment and other social outcomes for the young people affected. This is principally based on the observation that those who complete high school fare better in the labour market than those who leave school early.

On the surface these arguments seem convincing enough. When put to closer scrutiny, however, the underlying assumptions are questionable. There are no clear theoretical grounds to assume young people will benefit from staying at school longer than they do now, and empirical support put forward supporting this policy succumbs to a well-recognised fallacy of evaluation. The fact those who complete school have better outcomes than those who leave school early cannot necessarily be taken to imply that the extra years of schooling cause those better outcomes. And even if this were the case, it still cannot be taken that those who currently do not complete school would similarly benefit from spending more time in school.

In a recent study, I attempted to estimate the benefits that non-academically inclined youth receive as a result of accruing extra years of schooling. For interested readers, a full report of this analysis has been recently released as an LSAY Research Report (pdf file 67.4KB) available from the Australian Council for Educational Research (ACER).

It is the fallacy behind the argument based on the better outcomes of those who complete Year 12 that primarily motivated my research. But before discussing this in more detail, it is useful to consider the benefits of schooling (or education more generally) at a more abstract level.

Schooling plays several important roles in society, and the relative emphasis between these roles shifts as students progress through their school life. Towards the final years of secondary education the main role of schools is to help prepare and direct students into the first stage of their careers, whether that is university, further vocational education and training (VET), or directly into the workforce.

This preparation includes the provision of general education required in those anticipated careers, as well as the mechanisms to signal to students, employers and institutions which students are best suited to alternative jobs and pathways. After some point, the gain from each additional year of schooling will begin to diminish, while the costs of keeping young people in school, which include the lost opportunities of being in paid employment or of progressing along some other VET pathway, will continue to rise. Thus we can think of a break-even point which defines the socially optimal number of years of schooling.

The optimal number of years of schooling will slowly change as a result of structural and technological change in the pattern of production, and will fluctuate with macro-economic conditions and with the youth unemployment rate in particular. It will also differ significantly between individuals according to their skills, career aspirations and other attributes.

Skill-biased technological change, high youth unemployment rates and the better job prospects of those who complete Year 12 have all been used at various times to argue that the school retention rate or the compulsory level of schooling needs to be increased. However these arguments rarely address, in any quantitative sense, what the optimal level of schooling may be and they ignore the critical issue of individual heterogeneity, i.e., how much that optimum may vary from one individual to another.

The concept of an optimal level of schooling is most commonly understood within the framework of human capital theory, which sees education as an investment, which offers a return by raising individuals’ productivity, and hence earnings. In contrast, the screening hypothesis states that the superior outcomes observed for those with higher levels of education are due to the inherent characteristics already possessed by those individuals who continue on in education. In other words, further education screens out the most capable, but does not in itself add to their productivity and earnings capacity other than by improving the information set for matching individuals to jobs. With this view, much of the value in schooling lies in the signals it sends to employers, higher education institutions and to young people deciding what career they should pursue.

Most labour economists and educationalists would accept there are elements of truth to both the human capital and screening hypotheses, and also that the signalling role of schooling is important.

Is there any point in keeping poorly performing students on to graduate with the lowest marks? Forcing all young people to complete Year 12 will simply serve to devalue the signal provided by a Leaving Certificate and reduce the efficiency of the labour market. It will not change the quality or inherent productivity of the range of jobs open to them. James Rosenbaum has highlighted just such negative consequences of the “college for all” approach in the United States.