David E. Frisvold and M. Melinda Pitts

Working Paper 2018-4
June 2018

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This paper examines the impact of state merit-aid programs on the labor market attachment of high school-aged youths. The labor force participation rate of teenagers has fallen substantially in recent decades, coinciding with the introduction of merit-aid programs. These programs reduce the price of attending an in-state public college or university for high-achieving students and have the potential to influence students' allocation of time and effort between labor market activities, human capital development, and other forms of leisure. We examine the influence of these programs based on their generosity, both in the amount of aid provided to a recipient and the percent of students who are recipients of aid, and in their selectivity. Our results suggest that programs that are more selective reduce labor force participation, but are not a significant cause in the decline in teenage labor force participation in recent decades.

JEL classification: J2, I2

Key words: merit aid, labor force participation, education, financial aid

https://doi.org/10.29338/wp2018-4

The authors are grateful to Biplab Datta and Astha Sen for research assistance. They also thank Angela Dills; Amanda Griffith; Hope Corman; seminar participants at the Federal Reserve Bank of New York, University of Iowa, and University of Nebraska; and participants at the South Carolina Applied Micro Day, Southern Economic Association, and Western Economic Association conferences for helpful comments. The views expressed here are the authors' and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors' responsibility.
Please address questions regarding content to David Frisvold, University of Iowa, Department of Economics, 21 E. Market Street, Iowa City, IA 52242, 319-335-0957, david-frisvold@uiowa.edu, or M. Melinda Pitts, Federal Reserve Bank of Atlanta, Research Department, 1000 Peachtree Street NE, Atlanta, GA 30309-4470, 404-498-7009, Melinda.pitts@atl.frb.org.
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