Parents’ income and children’s school drop-out at 16 in England and Wales: evidence from the 1970 British Cohort Study

This paper investigates the effect of parents’ income on children’s drop-out from school at age 16 using data from the 1970 British Cohort Study (BCS70). Unlike previous papers using the same data set, we use a continuous measure of income derived from the grouped income variable available in the BCS70, we employ instrumental variable techniques to address the issue of endogeneity of family income and take account of the potential endogeneity of income response with respect to a child’s education by jointly modelling the school drop-out decision and response to the family income question. Our estimates show the exogeneity of response to the income question with a child’s education and are in line with the previous literature finding a statistically significant small negative effect of family income on school drop-out at 16. On the contrary, other non-pecuniary parental effects, such as parental education and social class, turn out to be both significant and of a sizeable magnitude. Early versions of this paper benefited from presentations at the University of Warwick, the ZEW Summer Workshop 2002 on Human Capital, the European Society for Population Economics 2002 Conference and the European Economic Association 2002 Conference and comments by Martin Andrews, Lorenzo Cappellari, Charlotte Lauer, Derek Leslie, Jeremy Smith, Mark Stewart, and two anonymous referees. The BCS70 data were kindly provided by, and used with permission of, the UK Data Archive (UKDA, University of Essex). Funding from the ESRC is gratefully acknowledged. The usual disclaimer applies.