State Merit Aid: Distortionary Effects on Labor Market and Fiscal Outcomes

• In Event: College Choice in Broader Social, Political, and Legal Context

Abstract

States have an economic interest in developing and retaining human capital, but face challenges from underinvestment in education and the outmigration of skilled workers. This paper evaluates the long-run effects of a prominent policy response to these challenges: state merit aid programs that subsidize in-state college attendance. Using national survey data on college enrollment and U.S. Census data, I exploit differences in program adoption timing to compare changes in outcomes between states and across cohorts in a staggered difference-in-differences design. Merit aid shifts students from out-of-state to in-state institutions, which are relatively less selective on average. There is little evidence that these programs increase degree attainment or long-run in-state residence. For women, program exposure reduces post-college employment and earnings, while there is limited evidence of effects for men. Welfare analysis shows net losses for program recipients and adopting states, with additional negative fiscal spillovers to other jurisdictions.

Author

• Cameron Conrad, RAND Corporation
  Presenting Author