Association for Public Policy Analysis & Management

Research on college completion has focused on factors that affect the “supply side” of college dropouts, i.e., individual-level determinants of college completion such as race, family income, cognitive skills, and college readiness. The majority of this research examines whether financial aid affects student decision to attend, persist in, and complete a college degree (Bettinger, 2004, 2015; Castleman & Long, 2012; Dynarski, 2008; Goldrick-Rab, Harris, Kelchen, & Benson, 2012; Scott-Clayton, 2011; Sjoquist & Winters, 2015). Within this research, a small and recent group of studies started to pay attention to the effects of institutional characteristics, often measured using student-faculty ratio, on college achievement (Bound, Lovenheim, & Turner, 2010; Castleman & Long, 2012; Myers & Pavel, 2013). A key limitation of the research on college completion, however, is that it tends to overlook the “demand side” for college dropouts. That is, whether the structure of local labor markets affects individual’s likelihood of completing a college degree.

Student decision to complete college depends not only on individual-level characteristics such as socio-economic status and college preparedness, it is also affected by the opportunity costs associated with obtaining a college degree. These opportunity costs are not fixed across local labor markets. In fact, local labor markets provide students with different sets of incentives that shape their college decisions, depending on the job opportunity structure within these markets. For example, local labor markets that are dominated by low-skill service occupations, which are more attractive to individuals with no college degree, may discourage students from completing their higher education. The effects of these markets may be stronger among poor and minority students who are more sensitive to the cost of higher education. Likewise, local labor markets where unemployment rate among individuals without college degree is relatively low or the difference in wages between college graduates and those without degree is not large will discourage degree attainment. On the contrary, local labor markets with occupation structure that rewards individuals with college degree will encourage students to obtain their degree.

This paper uses data from the American Community Survey (ACS) and the Current Population Survey (CPS) to identify the job opportunity structure within local labor markets over the period 1987-2012. I use three measures to capture the job opportunity structure within a local labor market: 1) the occupation structure of a local labor market, which reflects the share of low-skill occupations within the market, 2) the unemployment rate among individuals with some college, and 3) the differences in median wages between college graduates and those with some college. All these variables are measured at the Metropolitan Statistical Area (MSA) level. To investigate the effects of job opportunity structure on degree attainment across the U.S. metropolitan areas, I merge the ACS and CPS data sets with institutional level data from Integrated Postsecondary Education Data System (IPEDS).