Why Do Students Leave Education Early? Theory and Evidence on High School Dropout Rates

This paper contributes to the growing literature on school dropout by proposing and empirically testing a theoretical framework on the enrollment decision of youngsters in secondary education. The model relates school dropout to time preferences, motivation, opportunity costs, and policy measures, and is empirically tested on longitudinal data of about 5,000 Dutch vocational students. We evaluate the enrollment decision of students for (1) different intensity levels of dropout prevention policy, and for (2) different levels of economic development. The results indicate that the model can accurately predict actual enrollment rates over the period 2000-2011. Using the model to forecast the level of school dropout in the Netherlands by the year 2020, it is observed that a very strict dropout prevention policy could yield nearly maximum enrollment rates (i.e., 97%) in schools. However, the annual budget for a similar dropout prevention policy is estimated at 574 million euros or 0.10% of the Dutch GDP.