In chapter 12 of Investing in Kids, I also consider how reducing the high school dropout rate benefits a state economy. As with early childhood programs and other educational investments, reducing high school dropouts affects economic development by affecting labor force quality. Many of those persons who otherwise would be high school dropouts will remain in that same state. Their presence will attract more and better jobs to the state. This raises state per capita earnings, my definition of state economic development benefits.

In analyzing the benefits of reducing high school dropouts, I conservatively assume that only a small proportion of the additional high school graduates will go on and complete post-secondary education. Specifically, I assume that only one-fifth will get further education and only 6% will get a bachelor’s degree.  Economic development benefits will be greater if additional measures are taken to increase post-secondary education.

I estimate that converting one high school dropout to a high school graduate has economic development benefits of $175,000 for a state economy. This figure is less that the present value of earnings due to high school graduation. For example, it does not include the additional earnings for high school graduates who move out of state.

Most public policies that attempt to reduce high school dropout rates will not have 100% success. Some students targeted would have graduated from high school even without the dropout prevention program. Not all students targeted by the program will graduate from high school. However, even a program with very small effects on high school graduation rates can justify considerable expenses per student, based on state economic development benefits. For example, consider a program that causes 1% of the population to switch from being a high school dropout to a high school graduate. Such a program would have state economic development benefits exceeding costs even if it cost any amount up to $1,750 per student.

Better skill quality for state residents has enormous payoffs for a state economy. Such payoffs can justify costly investments as long as these investments produce results.

None of this is to say that high school programs are the best way to reduce high school dropouts. There are few high school programs that are proven successes in reducing high school dropouts.  In contrast, high-quality preschool has been shown to reduce high school dropouts. For example, the Chicago Child-Parent Center Program increased the high school graduation rate by 6.8 percentage points.  School reform and improvement is promoted by high-quality early childhood programs.