Are those attending preparatory classes more sensitive to wages than those attending university?
This paper examines how students decide whether to enrol in university or attend preparatory classes after leaving high school. It is to my knowledge the first paper to investigate whether students attending preparatory classes are more sensitive to expected wages than those attending university. To tackle this question, I first provide a theoretical framework that incorporates both monetary and non-monetary elements in the value function of agents. Then, by structurally estimating the dynamic model, I find that students are sensitive to expected wages when deciding to enrol in higher education. Furthermore, my results suggest that the probability of finding a job upon graduation from business or engineering school significantly increases the likelihood of students entering higher education rather than the likelihood to enter the labour market directly after high school. Nevertheless, the choice between attending preparatory classes or university remains largely driven by intrinsic student preferences. Simulations show that changing the probability of passing the competitive exam to attend a business or engineering school changes the college decision of students and can lead to unanticipated overcrowding in university-based master’s programs. This type of simulation is of particular interest as there is a considerable heterogeneity in the annual cost to the government of a student attending preparatory classes or a student attending university.