Topics on the Economic Outcomes of Young Adults

In this dissertation, I present two essays linked by their focus on forces that act on young people as they prepare to enter adulthood and their economically independent life. In the first, I investigate the impact of parents' location and occupational attributes on young adult children's labor market outcomes, particularly wages. I exploit the genealogical structure of the Panel Study of Income Dynamics (PSID) to measure locations, occupations and wages of young adults and their parents. I find that college graduates who live near their parents have lower wages than those who do not, but that wages for high school graduates are not strongly correlated with proximity to parents. In order to determine the reasons for these patterns, I build and estimate a model of young adults' location and occupation decisions to account for potentially competing effects parents may have on their children's wages. Using the model, I find evidence that young adults have strong preferences for living near parents, a result which through compensating differentials can partially account for the tendency to earn lower wages when near parents. However, I estimate that young people across all levels of educational attainment place similar value on this proximity. I also find that living near parents may directly enhance productivity and/or occupation quality and lead to higher wages. In particular, I find that high school graduates whose fathers are in cognitive skill-intense occupations have higher wages within and occupation and switch into more cognitive skill-intense occupations themselves if they live in the same labor market as their father, but that this effect is not present for college graduates. I also find a differential selection in the earnings potential of movers and differential impacts of the cost of occupational switching between high school and college graduates. These differences all substantially contribute to the differences in wage and location choice patterns between high school and college graduates.

In the second, I present joint work with V. Joseph Hotz, Peter Arcidiacono and Esteban Aucejo on college admissions in the University of California system. College graduation is an important outcome for future welfare, and in this chapter we examine possible causes for an increase in college graduations among UC students who enrolled in 1998-2000 versus those who had enrolled in the previous three years. In between these cohorts, Proposition 209 banned using racial preferences in admissions at California's public colleges. We analyze unique data for all applicants and enrollees within the University of California (UC) system before and after Prop 209. After Prop 209, graduation rates of minorities increased by 4.4\%. We characterize conditions required for better matching of students to campuses to account for this increase. We find that Prop 209 did improve matching and this improvement was important for the graduation gains experienced by less-prepared students. At the same time, better matching only explains about 20\% of the overall graduation rate increase. Changes after Prop 209 in the selectivity of enrolled students explains 34-50\% of the increase. Finally, it appears UC campuses responded to Prop 209 by doing more to help retain and graduate its students, which explains between 30-46\% of the post-Prop 209 improvement in the graduation rate of minorities.