Hidden Schooling: Repeated Grades and the Returns to Education and Experience

Abstract

Over the past four decades, ninth grade repeating has increased four-fold. Despite its prevalence, few economists have attempted to account for grade repeating when estimating returns to education and experience. I document the rise in grade repeating and show that 10% of the increase in ninth grade repeating can be attributed to changes in compulsory schooling laws (CSLs). I show that, because CSLs affect both grade repeating and educational attainment, CSL-based instrumental variables estimates of the returns to education are biased by up to 38%. Additionally, grade repeating causes endogenous measurement error in potential labor market experience. Solely through this measurement error, I show that the residual black-white wage gap is overstated by 10%, the wage returns to a GED relative to a high school diploma are understated by 15%, and the labor supply gap between GED recipients and high school graduates is overstated by 33%.