High school dropouts are costly to our society. It is important to inform policy makers how serious this situation is and what could be done to reduce high school dropout rates. This study explores the role of school characteristics in this investigation; it examines the association between school characteristics and high school dropout propensity and its direct and indirect effects on a student’s employment propensity and earnings disparity. Our study relied on one Maryland County’s public high school administrative records longitudinally linked with Maryland earnings records (i.e., Unemployment Insurance wage records) for students who dropped out of 12^th grade during school years 2004-2008.

Two path analysis models are adopted to estimate the dropout, employment, and earnings effects and to predict the tax revenue loss. This is an investigation not only important for local education policy makers, but also for workforce and economic development decision makers. The school characteristics measurements include Standardized Test Scores, College Readiness Measures, Teacher Qualifications, Attendance/Absenteeism Rates, and Students Receiving Special Services (Free/reduced Lunch, Title I, Special Education, Limited English Proficiency). The study concludes with policy implications.