Does the Peer Group matter? The Effect of Relative Rank on Educational Choice

In this paper I investigate whether a social contrast mechanism affects the choice of secondary schooling. Based on a theory of relative deprivation, a strand of research in social inequality of educational attainment shows that, controlling for the students ability, students who attends schools with more privileged peers have lower educational attainment and less prestigious labor market careers. This theory shows that students with similar ability may be regarded differently depending on context, which may affect the students' academic self-image. This also means that the students use their peers as a point of comparison. I investigate this theory using a school-by-grade fixed effects model and comprehensive administrative data. I examine the non-linear relationships between peers educational achievement on choice of secondary education. I show that the relative rank in the classroom have an important effect on choice of secondary education, suggesting that students in fact do contrast their relative rank in achievement to each other.