Children left behind. New evidence on the (adverse) impact of grade retention on educational careers

Abstract
This article analyzes the effect of grade retention in high school on later school outcomes in Italy. Grade retention is a strong signal of poor performance, so retained students should revise downwards their perceived probability of success in school. Grade retention also implies an increase in costs. Therefore, we expect a negative effect on future educational careers. However, the evidence from the existing literature is mixed. Using longitudinal administrative data, we propose a matching strategy to assess the impact of grade retention on institutional settings with considerable leeway in promotion/retention decisions. Following this strategy, we can interpret our results as estimates of the impact for students close to the threshold between retention and promotion. Our results add to the existing evidence that grade retention in high school has a negative impact on student’s educational outcomes by dramatically increasing dropout rates. Consistent with the compensatory advantage hypothesis, the negative effects are stronger for students with low educated or immigrant parents. Our findings suggest that alternatives to grade retention should be found to address underachievement.