High school dropouts: a case of negatively sloping supply and positively sloping demand curves

This study proposes and estimates a model that incorporates the approach of the supply of and demand for school dropouts. The model is estimated by using data for 604 Ohio school districts. On the supply side, attendance is the most dominant variable in explaining variations in the dropout rate. This is followed in importance by family structure, price and race. On the demand side, price is the most dominant variable, followed by income, attendance rate and divorce rate. The demand is highly price elastic, but the supply function is price inelastic. The model is also estimated by using cumulative inputs over 5 and 9 years. The results support the hypothesis that dropping out is a cumulative process. According to the results of this paper, schools can reduce dropouts with additional financial resources. However, the final outcome depends on the interaction of supply and demand for outputs.