Abstract

Schooling interruptions are common in North America and have recently attracted the attention of economists. In this paper, I provide structural estimates of a dynamic model of education and labor supply to investigate the impact of schooling interruptions on subsequent wage and employment outcomes. In this model, schooling interruptions evolve endogenously, and I approximate the expected value function using an approach suggested by Geweke and Keane (1996) that significantly reduces computational time. The results indicate that a temporary interruption to schooling attainment hurts post-graduation income relative to continuous investment in education, and consequently on the life-cycle income. However, even with an interruption, there are still significant wage gains from college and university relative to high school. Finally, the costs of interruptions and wage gains are heterogeneous and vary significantly across different racial groups and types of agents at both waves of NLSY. Using policy simulation, I find that under a post-secondary schooling subsidy policy, up to 4 percent more white males from cohort 1979 will make a choice to return to school, 9.6 percent more of them will obtain a university-level degree, and the hourly wage will also increase up to 4.1 percent. Under the same post-secondary schooling subsidy policy simulation, the white males from the 1997 cohort been more affected by the subsidy than their earlier cohort. At each cohort, black and Hispanics are more affected by the policy.