Executive summary
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Across Canada, various agencies offer programs that assist target populations in obtaining their high school diploma. This study utilizes newly available data to estimate the long-term, individual labour market premiums associated with completing high school. The focus is on the value of the qualification (the signaling effect), rather than the schooling required to obtain it (the human-capital effect), although both effects are estimated. The study also focuses on the value of a terminal high school diploma, not on its value as a gateway to a postsecondary education, although this value may be substantial since previous studies have associated a postsecondary education with superior labour market outcomes. However, many students at the margin of leaving high school early may not consider postsecondary studies in their decision-making process.
The labour market outcomes of individuals born in the mid-1960s are measured from their mid-20s to their mid-40s with longitudinal administrative data from the Longitudinal Worker File (LWF) that are linked to the 1991 Census of Population file. Two groups are considered: terminal high school graduates (those who had obtained a high school diploma but had not acquired any postsecondary education by the 1991 Census) and individuals without a high school diploma (those who had no high school diploma, were not enrolled in high school, and had no postsecondary education at the time of the 1991 Census). Given the richness of the LWF, several outcomes are examined, including wages and salaries, total earnings (wages and salaries plus net self-employment income), coverage by an employer-sponsored pension plan, employment, union membership, and permanent and temporary layoffs. All of these outcomes are measured over a twenty-year period. Outcomes reported in dollars are expressed in 2010 constant dollars. Other outcomes are expressed as counts (number of years) over the entire period.
The findings suggest that, after accounting for differences in the number of years of completed schooling and demographic characteristics, a high school diploma is associated with $83,000 to $123,000 in additional earnings for men and with $70,000 to $107,000 in additional earnings for women over the 20-year reference period. Men and women with a terminal high school diploma are also found to be covered by an employer-sponsored pension plan for about one additional year over the period. Finally, a high school diploma is associated with one to two additional years of employment for women. There is little evidence that a terminal high school diploma is associated with union membership or exposure to layoffs.
Overall, the results point to small, but non-negligible, pecuniary benefits to completing a high school diploma, even though individuals who pursued postsecondary schooling where excluded from the analysis. The results also lend support to a signaling effect in the labour market: the notion that, in the absence of reliable information on the skill set of workers, employers will view the completion of a high school diploma as a positive signal.
Although the focus of the study was the signaling effect of a high school diploma, the study did find a substantial human-capital effect of schooling. The average student with no high school diploma has 1.8 fewer years of schooling than does the average terminal high school graduate. The estimated value of completing those additional 1.8 years of schooling (without receiving the diploma) is about equivalent to obtaining the diploma itself.
Using an extraneous data set, the International Adult Literacy and Skills Survey (IALSS 2003), the main results of the study (the signaling effects on earnings) are confirmed even when direct skill measures are included in the model, along with parental education variables.
The study also sheds light on why U.S. studies (Heckman and LaFontaine 2006; Martorell and Clark 2010) have found no premiums associated with completing a high school diploma, while Canadian studies (Campolieti et al. 2009 and the current study) find that there are benefits to doing so. Specifically, the U.S. studies examine local average treatment effects that pertain to individuals on the margin of passing the requirements to complete high school. In contrast, the Canadian studies estimate average premiums, not only those experienced by marginal students. Moreover, quantile regression results suggest considerable variability in outcomes along the conditional distribution of earnings, and these may reconcile the Canadian and U.S. findings. Specifically, the premiums associated with a high school diploma are quite low for those at the bottom of the wage distribution and much higher for the rest of the distribution.
It is important to note that the results of this study apply to one particular cohort—individuals born in the mid-1960s who were successfully linked to administrative data. Although the cohort is largely representative of the broader population of individuals born in the mid-1960s, some differences may nevertheless exist. Moreover, long-term outcomes for more recent cohorts are not yet available, and may or may not display similar results.
A follow-up study will focus on the long-term labour market premiums associated with educational decisions made by high school graduates: entering the workforce immediately, or pursuing a college certificate or a bachelor’s degree.
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