Law professors were among the first in universities, and Economics emerged in many places from Law Schools. This make the study of laws an old and established profession, but this is not why I am mentioning cobwebs here. I am rather referring to the cobweb model, where price and quantity bounce around along the path of a spiral to reach an equilibrium.
According to Christoph Engel and Hanjo Hamann, this is what is happening on the market for Law professors in Germany. Say there are a lot of open positions in the German university system. This pikes the interest of law students, who after their doctorates require to go through a "habilitation" process that takes 6-9 years before they can apply for a professor position. And lo and behold, about eight years later, there is a surplus of candidates, which discourages younger students to choose this career, and we enter the other part of the cycle. Engel and Hamann show that this is not just theory, but applies remarkably well to the data, as it has before to cattle, whose biology leads to a similar market (ROsen, Murphy and Scheinkman 1994).
Showing posts with label education. Show all posts
Showing posts with label education. Show all posts
The value of human capital
How much is human capital worth? This is an important question when one this about the amount of resources that goes into education, both from public and private funds, as well as the substantial opportunity cost of attending school instead of working. The traditional approach is to compare the labor income of people with different levels of education and then come up with a return on investment or more often a return of one additional year of schooling.
Mark Huggett and Greg Kaplan take a different approach. They consider human capital to be an asset and decompose it into a bond (with fixed return), a stock (with variable return) and a residual. This becomes then a standard asset pricing problem. Then taking the labor income flow as a representation of the dividends from this portfolio, they can infer its composition, and how it changes over time. Using data for US males, it turns out the value of human capital is much lower than previously estimated. This is because the stochastic discount factor covaries negatively with earnings (they take into account capital income as well). Also, the bond component dominates the portfolio, especially for the college educated, which is not surprising given the large variance of income and employment among the less educated. What is more surprising, I think, is that stock market and human capital returns are not correlated. I would have thought that the business cycle would have had a strong impact there.
Mark Huggett and Greg Kaplan take a different approach. They consider human capital to be an asset and decompose it into a bond (with fixed return), a stock (with variable return) and a residual. This becomes then a standard asset pricing problem. Then taking the labor income flow as a representation of the dividends from this portfolio, they can infer its composition, and how it changes over time. Using data for US males, it turns out the value of human capital is much lower than previously estimated. This is because the stochastic discount factor covaries negatively with earnings (they take into account capital income as well). Also, the bond component dominates the portfolio, especially for the college educated, which is not surprising given the large variance of income and employment among the less educated. What is more surprising, I think, is that stock market and human capital returns are not correlated. I would have thought that the business cycle would have had a strong impact there.
On democracy and tuition hikes
Some students in Quebec have now been on strike for over three months over a law that would increase the tuition in all universities (they are all public) by a total of about US$1500 over five years. This seems a rather trivial amount for a US student, but in countries where tuition is free or almost free, this is not trivial. The apparent violence of the protests, which have gone all the way to sabotaging the subway system, and the daily protest marches show there is some deep issue at play. Let me add my grain of salt on two points.
The first is about democracy. I am all for popular uprisings, demonstrations and marches when there is a failure in the democratic process that leads the government to take decisions that are against the public good. Frankly, I do not see where the failure of democracy is in this case. The law was adopted by a democratically elected government. While Quebec is a province with severe corruption issues (for Western standards), the electoral process seems clean. Polls appear to show wide support for the government's policies. Even the striking students are a minority in the student population. The street should not hold the democratic process and sound policy making hostages.
Which brings me to the second point. Apparent popular support in the polls may be a reaction to the violence and radicalization of the student movement. It may not be about sound policy. But it should. Indeed, the main argument for low tuition is that it makes university access affordable to everyone. That is right, but it is also a gigantic gift to the rich, who send their children much more frequently and much longer to university. If you add the costs and the taxes, giving free tuition is equivalent to a very regressive taxation. I do not think that this is the goal. The goal is to get everyone to pay their fair share in education, for which the future personal benefits in present value are very large. Tuition should be subsidized because of the positive externalities of education, but those that benefit the most from it should also pay the most for it. If students cannot afford studies right now, then grants and loans can overcome that. But the fact that some students cannot afford to study should not lead to a policy where higher education is free, or almost free, for everyone.
The Quebec government is right on this one, and the street is wrong.
The first is about democracy. I am all for popular uprisings, demonstrations and marches when there is a failure in the democratic process that leads the government to take decisions that are against the public good. Frankly, I do not see where the failure of democracy is in this case. The law was adopted by a democratically elected government. While Quebec is a province with severe corruption issues (for Western standards), the electoral process seems clean. Polls appear to show wide support for the government's policies. Even the striking students are a minority in the student population. The street should not hold the democratic process and sound policy making hostages.
Which brings me to the second point. Apparent popular support in the polls may be a reaction to the violence and radicalization of the student movement. It may not be about sound policy. But it should. Indeed, the main argument for low tuition is that it makes university access affordable to everyone. That is right, but it is also a gigantic gift to the rich, who send their children much more frequently and much longer to university. If you add the costs and the taxes, giving free tuition is equivalent to a very regressive taxation. I do not think that this is the goal. The goal is to get everyone to pay their fair share in education, for which the future personal benefits in present value are very large. Tuition should be subsidized because of the positive externalities of education, but those that benefit the most from it should also pay the most for it. If students cannot afford studies right now, then grants and loans can overcome that. But the fact that some students cannot afford to study should not lead to a policy where higher education is free, or almost free, for everyone.
The Quebec government is right on this one, and the street is wrong.
On the difficulty of targeting financial aid to students
With the cost of education continuing to rise, financial aid to student becomes more important to help those with merit but little means (or borrowing constraints). Identifying whether financial aid actually helps bright students go to university is of course the most important question.
Loris Vergolini and Nadir Zanini study this in the case of Italy, where they surveyed students before and after university entrance, in the context of a generous financial aid initiative targeted towards bright low-income students. The results are sobering. it does not appear to have motivated more students to go to university. Those who were going anyway now are willing to move farther, presumably to potentially better programs. But this program was only recently introduced and could not have an impact on the school effort of those about to graduate. One can hope that its existence will motivate younger cohorts to excel in school to be eligible and make it to university.
Loris Vergolini and Nadir Zanini study this in the case of Italy, where they surveyed students before and after university entrance, in the context of a generous financial aid initiative targeted towards bright low-income students. The results are sobering. it does not appear to have motivated more students to go to university. Those who were going anyway now are willing to move farther, presumably to potentially better programs. But this program was only recently introduced and could not have an impact on the school effort of those about to graduate. One can hope that its existence will motivate younger cohorts to excel in school to be eligible and make it to university.
Universities as catalysts of the commercial revolution in the Middle Ages
Universities can have a profound impact on the economy of a region, Silicon Valley being a prime recent example. But this is usually difficult to see as they are spread pretty much everywhere now. Hence the interest in looking at older data, where universities were less common and economic activity differed a lot more across regions.
Davide Cantoni and Noam Yuchtman go way back, up to the 14th century in Germany. They compare the establishment of new market places to the founding of universities and find a surprisingly strong correlation when looking at the distance from the nearest university. Of course, you may think this is all endogenous. If a city or region develops, new market places emerge and there is critical mass or wealth for an institution of higher learning. But the authors argue there is causation from universities to markets. Indeed, the Papal Schism of 1386 was an exogenous shock that allowed the creation of universities, and they exploit the trend shift in the granting of markets around this date. The intuition of the causation is that universities provided training in law, which facilitated the creation of legal institutions and ultimately the enforcement of contracts. So, once more, institutions matters, but this is also an interesting counterexample to the intuition that lawyers create demand for there services with no economic or social benefit.
Davide Cantoni and Noam Yuchtman go way back, up to the 14th century in Germany. They compare the establishment of new market places to the founding of universities and find a surprisingly strong correlation when looking at the distance from the nearest university. Of course, you may think this is all endogenous. If a city or region develops, new market places emerge and there is critical mass or wealth for an institution of higher learning. But the authors argue there is causation from universities to markets. Indeed, the Papal Schism of 1386 was an exogenous shock that allowed the creation of universities, and they exploit the trend shift in the granting of markets around this date. The intuition of the causation is that universities provided training in law, which facilitated the creation of legal institutions and ultimately the enforcement of contracts. So, once more, institutions matters, but this is also an interesting counterexample to the intuition that lawyers create demand for there services with no economic or social benefit.
The impact of poor scheduling of international football tournaments on English GCSE results
For every big sports event, there are two types of economic studies that make the news: the ones about the economic impact, which essentially add up all the expenses somewhat related to the event (sometimes applying a multiplier), never mind the fact that all this could have been spent on something else, and the studies about productivity losses because people are sleepy or distracted at work. I remember from school days that these events would also have a tendency to fall on exam period, which was a serious drag on exam preparation. How much? Someone finally figured it out.
Robert Metcalfe, Simon Burgess and Steven Proud exploit the fact that every two years a major international football tournament overlaps with important exams at the end of compulsory schooling in England. And their results are not pretty: male students as well as disadvantaged students suffer disproportionately from the competition for their attention. From them, exam scores are reduced by 0.2 standard deviations, which substantial, and as the authors note as large as some policy interventions. Just rescheduling those exams could be more effective than pouring money into some school initiatives.
Robert Metcalfe, Simon Burgess and Steven Proud exploit the fact that every two years a major international football tournament overlaps with important exams at the end of compulsory schooling in England. And their results are not pretty: male students as well as disadvantaged students suffer disproportionately from the competition for their attention. From them, exam scores are reduced by 0.2 standard deviations, which substantial, and as the authors note as large as some policy interventions. Just rescheduling those exams could be more effective than pouring money into some school initiatives.
Pregnant women should not fast during Ramadan
As Jim Heckman and consorts have much emphasized, schooling and labor market outcomes are determined to a large extend very early in life, before school even starts. This puts a considerable burden on mother to provide the right environment for their children, and this is sometimes very difficult for them. With single motherhood or in the absence of sufficient paid maternal leaves, for example, it often becomes impossible to provide a nurturing environment. But one can go back even further. Birth weight is also a very important determinant, and anything that influences it matters.
Douglas Almond, Bhashkar Mazumder and Reyn van Ewijk show that it may not be sufficient to look at the final birth weight but also at how the fetus was nourished on a daily basis. During the month of Ramadan, practicing Muslims fast during daylight, and this includes pregnant women. The analysis shows that Ramadan during early pregnancy is related to lower test scores for the child at age seven. One may think this has to do with cut-off months for school entrance, but the analysis was performed looking at Pakistani and Bangladeshi children in England, thus there is a control population with the same cut-offs and socio-demographic characteristics but no Ramadan observance: Caribbean children. Beyond Muslims, this implies that nutrition is very important in early pregnancy, but this is very difficult to control as pregnancy is not apparent yet. Which means nutrition is important at any time for women in child bearing age.
Douglas Almond, Bhashkar Mazumder and Reyn van Ewijk show that it may not be sufficient to look at the final birth weight but also at how the fetus was nourished on a daily basis. During the month of Ramadan, practicing Muslims fast during daylight, and this includes pregnant women. The analysis shows that Ramadan during early pregnancy is related to lower test scores for the child at age seven. One may think this has to do with cut-off months for school entrance, but the analysis was performed looking at Pakistani and Bangladeshi children in England, thus there is a control population with the same cut-offs and socio-demographic characteristics but no Ramadan observance: Caribbean children. Beyond Muslims, this implies that nutrition is very important in early pregnancy, but this is very difficult to control as pregnancy is not apparent yet. Which means nutrition is important at any time for women in child bearing age.
When should a child start school?
How early should one send a child to school. Too early, and she may miss critical time with parents and not be ready for school. Too late, she may have to deal with classmates that are not as fast or as developed (see previous post on redshirting). But it is not just a question for an individual, one needs also to figure when as a society school should start. France, for example, offers public kindergarten very early (2.5 to 3 years old), and it much more pedagogical than daycare. Most French kids enter first grade with reading skills. In the US, kindergarten is at age of sex or even seven, and there is little teaching. China is similar.
Dionissi Aliprantis uses the Early Childhood Longitudinal Study and exploits cross-state and cross-time differences in the cut-off date that makes children eligible for kindergarten as five-year olds. Children were analyzed in kindergarten, 3rd, 5th and 8th grade. It turns out that an earlier cut-off date is better, and an earlier birthday as well, as long as the child remains eligible. But the analysis only pertains to rather small start age differences, so it is difficult to extrapolate to even earlier start date as seen elsewhere.
Dionissi Aliprantis uses the Early Childhood Longitudinal Study and exploits cross-state and cross-time differences in the cut-off date that makes children eligible for kindergarten as five-year olds. Children were analyzed in kindergarten, 3rd, 5th and 8th grade. It turns out that an earlier cut-off date is better, and an earlier birthday as well, as long as the child remains eligible. But the analysis only pertains to rather small start age differences, so it is difficult to extrapolate to even earlier start date as seen elsewhere.
Why are school counselors so bad?
Recent news articles following up on the Occupy X movement have focused on youth unemployment and student debt. One aspect of this that strikes me are the absurdly bad choices students make. And from discussions with undergraduate students I ahad over the years, school counselors shares share part of the blame.
For one, they keep sending students into supposedly easy majors, even if job prospects are slim. If a student cannot handle the rigors of a serious university education, he should not be in university. He is less likely to get grants, more likely to take longer to graduate and then be in debt, less likely to get well-paying jobs there after and thus will face students debts for many years. Also, students with ambitions in better majors are told to switch to easier majors when they face difficulties, instead of helping them to overcome these difficulties. This is in particular the case for ethnic minorities and women, and one then wonders why they are underrepresented in science and technology. The problem is that counselors perpetuate or even amplify prejudices. An example is Neil deGrasse Tyson who was told that as a black he should go to basketball, not physics, and was not offered the help white students were getting when he struggled with classes, when blacks are not expected to excel in physics.
Also, counselors seem to obsessed with finding the "right college," which often an obscure little university where every major has only two or three faculty, and turn out to be expensive. The usual explanation is that the students needs small classes. This seems like another case of someone who is going to be highly in debt for a long time. And to come to Economics, the major is filled with undergraduates who did not get in or got kicked out of the business school, most often for failing on business mathematics and statistics. And what do counselors tell them? Get into a similar major, like Economics (or Psychology), ignoring that those quantitative skills are even more needed.
Why do counselors give such bad advice? I do not have an answer beyond wild guesses. But my casual observation tells me that the best psychologists or education professionals do not espouse this career, and for a good reason: on average the entry salary for a graduate of a Masters program in school counseling is an astounding US$33,000. In some sense, this is the bottom of the barrel that is trying to give advice to people on how to avoid falling to the bottom of the barrel. That is hardly inspiring. Schools should hire at least a few people who had successful careers to show how it is done, for example retirees.
For one, they keep sending students into supposedly easy majors, even if job prospects are slim. If a student cannot handle the rigors of a serious university education, he should not be in university. He is less likely to get grants, more likely to take longer to graduate and then be in debt, less likely to get well-paying jobs there after and thus will face students debts for many years. Also, students with ambitions in better majors are told to switch to easier majors when they face difficulties, instead of helping them to overcome these difficulties. This is in particular the case for ethnic minorities and women, and one then wonders why they are underrepresented in science and technology. The problem is that counselors perpetuate or even amplify prejudices. An example is Neil deGrasse Tyson who was told that as a black he should go to basketball, not physics, and was not offered the help white students were getting when he struggled with classes, when blacks are not expected to excel in physics.
Also, counselors seem to obsessed with finding the "right college," which often an obscure little university where every major has only two or three faculty, and turn out to be expensive. The usual explanation is that the students needs small classes. This seems like another case of someone who is going to be highly in debt for a long time. And to come to Economics, the major is filled with undergraduates who did not get in or got kicked out of the business school, most often for failing on business mathematics and statistics. And what do counselors tell them? Get into a similar major, like Economics (or Psychology), ignoring that those quantitative skills are even more needed.
Why do counselors give such bad advice? I do not have an answer beyond wild guesses. But my casual observation tells me that the best psychologists or education professionals do not espouse this career, and for a good reason: on average the entry salary for a graduate of a Masters program in school counseling is an astounding US$33,000. In some sense, this is the bottom of the barrel that is trying to give advice to people on how to avoid falling to the bottom of the barrel. That is hardly inspiring. Schools should hire at least a few people who had successful careers to show how it is done, for example retirees.
Individual characteristics are more important for academic success in university
What makes a good college students? Looking at the admission criteria of universities can be insightful. Public universities in the United States basically just look for high school grades and standardized test results, with some adjustment background characteristics (race, high school characteristics), if any. European universities in the end just care about grades, in most cases that a student was above some level. And US private universities look at a large array of characteristics, with extracurricular activities and personal essays being of particular importance, grades in some cases being even ignored. While these different types of universities have obviously different motivations, ultimately they are looking for potential in students. So what determines academic success?
Martin Dooley, Abigail Payne and Leslie Robb use administrative data about a dozen entering cohorts in four Ontario universities to explain what makes students stay longer in tertiary education and have better college grades. It turns out that the high school grades are pretty much sufficient. At least for Canada, it is reassuring to see that individual performance matters more than where you are coming from. Of course, one could wonder whether all the other characteristics that private US schools consider would matter here. But this kind of data was presumably not available, as Ontario universities, all public, do not ask for such information during the application process. Also, there is no record in the study about individual standardized test results. Including those would only reinforce the results, but may have important policy implications: imagine they do not matter. Then it opens the door to grade inflation in high schools, and the grade signal gets diluted. And then admissions officers need to find something else to rely on, such as some of the characteristics that matter less.
Martin Dooley, Abigail Payne and Leslie Robb use administrative data about a dozen entering cohorts in four Ontario universities to explain what makes students stay longer in tertiary education and have better college grades. It turns out that the high school grades are pretty much sufficient. At least for Canada, it is reassuring to see that individual performance matters more than where you are coming from. Of course, one could wonder whether all the other characteristics that private US schools consider would matter here. But this kind of data was presumably not available, as Ontario universities, all public, do not ask for such information during the application process. Also, there is no record in the study about individual standardized test results. Including those would only reinforce the results, but may have important policy implications: imagine they do not matter. Then it opens the door to grade inflation in high schools, and the grade signal gets diluted. And then admissions officers need to find something else to rely on, such as some of the characteristics that matter less.
Are income-contingent loans for higher education feasible?
There is considerable discussion, in particular in the UK, about making education loans contingent on realized income after completion of education (and those who do not graduate have the loan paid by general taxes). On the face of it, it makes much sense as those who reap the most benefits from their education pay the most for it. But the bigger advantage is thought to come that such a scheme would help overcome risk-aversion, educational outcomes are risky after all, and thus help more people to get higher education. Also, because education then does not require upfront payments, it helps alleviate liquidity problems young people typically face.
Elena del Rey and María Racionero see that this is not that easy to implement. Indeed, some people would lose if such loans would be implemented, foremost those who do not need loans (but this can be reversed if they are very risk averse) and those who are little risk averse. Regarding education subsidized from general taxation, those who can afford private education are again opposed, as well as those who are less able to acquire higher education. If one were to choose between the two financing schemes, it would all depend on the political power. If we assume everyone has a vote of equal weight, then all boils down the level of risk aversion of the population, the distribution of which we know very little about, and the aptitude to education, which is rather uncertain at the individual level. So in the end, we are not much wiser.
Elena del Rey and María Racionero see that this is not that easy to implement. Indeed, some people would lose if such loans would be implemented, foremost those who do not need loans (but this can be reversed if they are very risk averse) and those who are little risk averse. Regarding education subsidized from general taxation, those who can afford private education are again opposed, as well as those who are less able to acquire higher education. If one were to choose between the two financing schemes, it would all depend on the political power. If we assume everyone has a vote of equal weight, then all boils down the level of risk aversion of the population, the distribution of which we know very little about, and the aptitude to education, which is rather uncertain at the individual level. So in the end, we are not much wiser.
Teenage achievement and the house price bubble
The general economic context of where and when you grow up matters. Think, for example, of those raised during the Great Depression in the US or World War II in Europe who are likely to be very careful with their spending, never through anything away and finish their plates. In this regard, what should we expect from those reaching adulthood in the past years?
Daniel Cooper and María José Luengo-Prado study the impact on teenagers of the house price boom before the current crisis in the United States on educational outcomes. Using the Panel Study of Income Dynamics (PSID), they find that a 1% higher house price at age 17 leads to a 0.8% higher income as adult if the parents owned the home, 1.2% lower if they were tenants, after conditioning for socio-economic characteristics. These are big numbers. They can be justified by the observation that higher house prices allows more collateral to borrow for education. Indeed households with a below median non-housing wealth saw even a 1.6% boost in their child's future income. To explain the impact on tenants, I suppose one can explain it with higher tuition in reaction to larger loans, which tenants cannot afford as well.
The consequences from the recent house price crash are daunting in this context. And given that state are disengaging themselves from financing their public colleges, leading to even higher tuition, the outlook is even worse.
Daniel Cooper and María José Luengo-Prado study the impact on teenagers of the house price boom before the current crisis in the United States on educational outcomes. Using the Panel Study of Income Dynamics (PSID), they find that a 1% higher house price at age 17 leads to a 0.8% higher income as adult if the parents owned the home, 1.2% lower if they were tenants, after conditioning for socio-economic characteristics. These are big numbers. They can be justified by the observation that higher house prices allows more collateral to borrow for education. Indeed households with a below median non-housing wealth saw even a 1.6% boost in their child's future income. To explain the impact on tenants, I suppose one can explain it with higher tuition in reaction to larger loans, which tenants cannot afford as well.
The consequences from the recent house price crash are daunting in this context. And given that state are disengaging themselves from financing their public colleges, leading to even higher tuition, the outlook is even worse.
Should we encourage business ownership?
Politicians claim left and right that small business owners are critical to the success of an economy. They woo them with various tax credits and by turning a blind eye to their opportunities to hide income from taxation. Yet, politicians also rewards large companies with generous tax abatements, especially when the relocate or just promise not to move away. So, in the end, who should be encouraged. the small business owner or the big conglomerate? In part, this is a question about whether it is better to have many self-employed workers or many employed workers.
Mirjam van Praag and André van Stel address this question by trying to determine the optimal business ownership from a sample of 19 OECD countries over 26 years. They proceed by estimating a Cobb-Douglas production function augmented with a business ownership rate, its square, tertiary education, as well as interactions of the latter with the formers. This is not a production function that has an interpretation for factor shares, it is rather a test of some relationships in the data. And by the implied non-linearity, it allows to computed from the regression coefficients what the optimal business ownership rate would be. On average, it is 12.5%, which is definitely not high, and it declines over time.
Furthermore, van Praag and van Stel find that countries with a higher proportion of workers with tertiary education enjoy a lower optimal business ownership rate, converging towards 11% when everyone has a university education (no gravediggers?). The interpretation they offer is that better educated people run larger firms. As business owners are a minority in a developed economy anyway and only the top business owners really matter for economic performance, I am not quite convinced by this argument, but it is apparently supported by microeconomic evidence. I would have rather thought that a more educated workforce is more specialized, and under such circumstances it is more difficult to be a business owner. The only exception are start-ups, which then either fails or are gobbled up by a larger firm.
Mirjam van Praag and André van Stel address this question by trying to determine the optimal business ownership from a sample of 19 OECD countries over 26 years. They proceed by estimating a Cobb-Douglas production function augmented with a business ownership rate, its square, tertiary education, as well as interactions of the latter with the formers. This is not a production function that has an interpretation for factor shares, it is rather a test of some relationships in the data. And by the implied non-linearity, it allows to computed from the regression coefficients what the optimal business ownership rate would be. On average, it is 12.5%, which is definitely not high, and it declines over time.
Furthermore, van Praag and van Stel find that countries with a higher proportion of workers with tertiary education enjoy a lower optimal business ownership rate, converging towards 11% when everyone has a university education (no gravediggers?). The interpretation they offer is that better educated people run larger firms. As business owners are a minority in a developed economy anyway and only the top business owners really matter for economic performance, I am not quite convinced by this argument, but it is apparently supported by microeconomic evidence. I would have rather thought that a more educated workforce is more specialized, and under such circumstances it is more difficult to be a business owner. The only exception are start-ups, which then either fails or are gobbled up by a larger firm.
The military draft, mortality and education
The data sometimes work in mysterious ways and provide puzzling correlations that lead to interesting research questions. One such correlation is that exemption from military service leads to lower mortality later in life.
Piero Cipollone and Alfonso Rosolia find this while looking at a natural experiment following the 1981 earthquake in Southern Italy. Boys from the affected region were exempted from military service, and they were followed, along with non-exempted neighbors, to track their life and education. By concentrating on boys both sides close to the border of the exempt region, they find that those exempt ended up being more educated. I can easily believe that, as they were not spending some of their prime learning years hiding in bushes and peeling potatoes, and they were expecting a longer work life. But the exempt also have lower mortality. This is not due to a lower incidence of military accidents, it is rather linked to the higher school completion rates. In fact, the authors conclude that raising high school completion by 10 percentage points would lower mortality by one or two percentage points in the decade thereafter. That is impressive at that age.
Piero Cipollone and Alfonso Rosolia find this while looking at a natural experiment following the 1981 earthquake in Southern Italy. Boys from the affected region were exempted from military service, and they were followed, along with non-exempted neighbors, to track their life and education. By concentrating on boys both sides close to the border of the exempt region, they find that those exempt ended up being more educated. I can easily believe that, as they were not spending some of their prime learning years hiding in bushes and peeling potatoes, and they were expecting a longer work life. But the exempt also have lower mortality. This is not due to a lower incidence of military accidents, it is rather linked to the higher school completion rates. In fact, the authors conclude that raising high school completion by 10 percentage points would lower mortality by one or two percentage points in the decade thereafter. That is impressive at that age.
Education for gifted students: all for nothing?
Not every kid progress at the same pace through school, this is why some occasionally need to repeat their grade. How to handle gifted children is more controversial. Should they be allowed to skip a grade? Should they be offered special classes? Or should they simply follow the normal stream at the risk of getting bored? A good argument for devoting additional resources to them is that they will likely be the future leaders and entrepreneurs, and those are deemed to be the engines of growth.
Sa Bui, Steven Craig and Scott Imberman study the issue in the United States. Interestingly, the US has been steering towards channeling additional funding towards lagging students through the "No child left behind" laws, ironically implemented by a Republican administration. Gifted programs suffered from this reallocation, and the question whether this had an impact on the outcomes of gifted children. Comparing fifth-graders who were the last eligible for a gifted student program to those how just missed out, Bui, Craig and Imberman hardly find a difference. The science outcomes are better when looking at a randomization experiment for eligibility to a gifted student magnet school. This may be due that in such schools, classes are at a higher level and teachers may be better (and parents may get more involved). However, students may be suffering from a lower class rank among their peers. So it may all come to a draw. There is no easy solution.
Sa Bui, Steven Craig and Scott Imberman study the issue in the United States. Interestingly, the US has been steering towards channeling additional funding towards lagging students through the "No child left behind" laws, ironically implemented by a Republican administration. Gifted programs suffered from this reallocation, and the question whether this had an impact on the outcomes of gifted children. Comparing fifth-graders who were the last eligible for a gifted student program to those how just missed out, Bui, Craig and Imberman hardly find a difference. The science outcomes are better when looking at a randomization experiment for eligibility to a gifted student magnet school. This may be due that in such schools, classes are at a higher level and teachers may be better (and parents may get more involved). However, students may be suffering from a lower class rank among their peers. So it may all come to a draw. There is no easy solution.
The marital college premium
There are a lot of good reasons to marry an educated partner. Among them is that his/her income is higher, and theory has consistently pointed to the fact that one's own returns to education should be higher. This is known as the supermodularity of the marriage return function: the second derivative of outcomes with respect to both education levels is positive. This implies that the return to education becomes even higher, as the couple's surplus increases even more due to the supermodularity. But how much?
Pierre-André Chiappori, Bernard Salanié and Yoram Weiss use an extract of the US Census to confirm that supermodularity is present is very significant manner. It varies by cohort, though, with in particular younger females seeing stronger returns than young males. This means that women have done better in three dimensions in recent decades: they closes a large part of the wage gap with men, they get a higher marital college premium and they marry better. All this compounds to remarkable progress for women, who also work more and get a larger share of the marital surplus.
Pierre-André Chiappori, Bernard Salanié and Yoram Weiss use an extract of the US Census to confirm that supermodularity is present is very significant manner. It varies by cohort, though, with in particular younger females seeing stronger returns than young males. This means that women have done better in three dimensions in recent decades: they closes a large part of the wage gap with men, they get a higher marital college premium and they marry better. All this compounds to remarkable progress for women, who also work more and get a larger share of the marital surplus.
On the value of liberal arts education
I find a recent opinion article on CNN by Michael Roth, the president of Wesleyan University, on the value of liberal arts education rather upsetting. I can understand that as the president of a liberal arts college he wants to defend this particular type of education. But his arguments ring particularly hollow, and I would have expected better from someone leading on of the best liberal arts colleges.
His selling points are the following. 1) A broadly-based education is better then professional or technical expertise. 2) Liberal arts develop critical thinking and creativity. 3) Focusing on science and engineering is a serious mistake. 4) Effective implementation of new technology requires social and economic understanding. 5) Scholarship in humanities increasingly requires scientists. 6) Flexibility is important on the job market.
I agree that an education can be too narrow. But the US liberal arts way of doing it is a waste. Undergraduate students spend less than two years worth in their chosen major, and most end up being functionally incompetent in their major as they graduate. I realize this is largely due to the fact that high schools failed to give them this broadly-based education as they water down requirements. But there has to be a better way. Send those who have not yet mastered the general education requirements to community colleges, for example.
If the US is the bastion of liberal arts, as Michael Roth claims, then he cannot claim it favors critical thinking. I am continually amazed how US students woefully lack in this regard, with few exceptions of course. They are not interested in what they are studying or the world outside. They are very passive and minimalist students. This is favored by the "anything goes" attitude that liberal arts favor.
The reason why the US is a world economic leader is that it has a scientific and technological edge, and that is has economic policies that provide good incentives, at least better than the rest of the world (and that Americans are obsessed with working). That edge is waning because other countries are catching up on the scientific and technological front and have already surpassed the US in several areas. Michael Roth apparently thinks it is wrong to try to keep that edge, and that one should focus more or social sciences, humanities and fine arts. He got the causation wrong. One can afford this when one is rich, but it does not make you rich.
I think he right on the fourth point. It is useless to engineer better crops if you cannot find a way for people to adopt them. But one does not need more liberal arts majors than scientists to achieve this. His fifth point actually shows liberal arts needs science, so science should not be discouraged.
I also agree with his sixth point. That is why one should have sufficient time to teach not just the recipes of a field, but also where they come from. This allows a student later to come up with new solutions to new problems. But the 3-4 semesters in a major do allow this. The result is that in fields where this is not sufficient students are not competent enough and end up with jobs outside their major and with low pay. Just look what pay is across majors. Liberal arts majors are consistently at the bottom, also due the fact that there are just too many of those students.
No, we should not encourage liberal arts education. This should be done in high school and community colleges. Let universities concentrate on the teaching of the core and produce truly competent professionals.
His selling points are the following. 1) A broadly-based education is better then professional or technical expertise. 2) Liberal arts develop critical thinking and creativity. 3) Focusing on science and engineering is a serious mistake. 4) Effective implementation of new technology requires social and economic understanding. 5) Scholarship in humanities increasingly requires scientists. 6) Flexibility is important on the job market.
I agree that an education can be too narrow. But the US liberal arts way of doing it is a waste. Undergraduate students spend less than two years worth in their chosen major, and most end up being functionally incompetent in their major as they graduate. I realize this is largely due to the fact that high schools failed to give them this broadly-based education as they water down requirements. But there has to be a better way. Send those who have not yet mastered the general education requirements to community colleges, for example.
If the US is the bastion of liberal arts, as Michael Roth claims, then he cannot claim it favors critical thinking. I am continually amazed how US students woefully lack in this regard, with few exceptions of course. They are not interested in what they are studying or the world outside. They are very passive and minimalist students. This is favored by the "anything goes" attitude that liberal arts favor.
The reason why the US is a world economic leader is that it has a scientific and technological edge, and that is has economic policies that provide good incentives, at least better than the rest of the world (and that Americans are obsessed with working). That edge is waning because other countries are catching up on the scientific and technological front and have already surpassed the US in several areas. Michael Roth apparently thinks it is wrong to try to keep that edge, and that one should focus more or social sciences, humanities and fine arts. He got the causation wrong. One can afford this when one is rich, but it does not make you rich.
I think he right on the fourth point. It is useless to engineer better crops if you cannot find a way for people to adopt them. But one does not need more liberal arts majors than scientists to achieve this. His fifth point actually shows liberal arts needs science, so science should not be discouraged.
I also agree with his sixth point. That is why one should have sufficient time to teach not just the recipes of a field, but also where they come from. This allows a student later to come up with new solutions to new problems. But the 3-4 semesters in a major do allow this. The result is that in fields where this is not sufficient students are not competent enough and end up with jobs outside their major and with low pay. Just look what pay is across majors. Liberal arts majors are consistently at the bottom, also due the fact that there are just too many of those students.
No, we should not encourage liberal arts education. This should be done in high school and community colleges. Let universities concentrate on the teaching of the core and produce truly competent professionals.
Entrepreneurs need an educated workforce
Entrepreneurship is the driver of growth and wealth, or at least an important driver. This is why so many initiatives are geared towards making life easier for entrepreneurs. And the champion in the US, with relatively little red tape, low taxes and especially very developed financial markets. One aspect that is much discussed right now is how low these taxes should be, especially as lowering them implies reducing some public benefits such as education. Is there a trade-off?
José María Millán, Emilio Congregado, Concepción Román, Mirjam van Praag and André van Stel use a panel dataset from several European countries to show that education matters for entrepreneurial performance, and it is not only the entrepreneur's own education, but also that of the workforce. An entrepreneur who cannot find appropriate workers or clients who are sophisticated enough for her products is not as successful. While the results are strong, I am a bit wary of using a short annual sample to tease anything out of education measures, but this is worth further investigation.
José María Millán, Emilio Congregado, Concepción Román, Mirjam van Praag and André van Stel use a panel dataset from several European countries to show that education matters for entrepreneurial performance, and it is not only the entrepreneur's own education, but also that of the workforce. An entrepreneur who cannot find appropriate workers or clients who are sophisticated enough for her products is not as successful. While the results are strong, I am a bit wary of using a short annual sample to tease anything out of education measures, but this is worth further investigation.
Who gains from public higher education?
The answer to this question seems rather obvious: those who get such education. Who loses? That is less obvious, and education has positive externalities on others.
Ana Balcão Reis says things are not that simple. First, we have to keep in mind that only few people are credit constrained when it comes to college tuition. Indeed, most of those who are do not make it that far in the first place. Second, those who benefit from public higher education are also those who pay the most taxes, thus the welfare benefit for them is ambiguous. To sort this out, the paper builds a model with different levels of education and agents differing by ability, human capital and the capacity of their parents to pay (which depends on their own human capital).
First think about the marginal agents, those who are the last one to go to public university. They would prefer not to have this option, that is, have only private universities and not pay the associated taxes. But because they have to pay them and college is now cheaper, they choose to get educated with little benefit. Those who do not go to college do not to pay taxes and would thus vote against public higher education. And the richest pay more in taxes than what they would pay in tuition. So all those left in favor of public universities are the not too rich who would go to college anyway. The question is whether they are a majority.
There is one important aspect missing in this analysis, though. Higher education has a positive externality on others: a more educated workforce raises everyone's productivity, and it makes it also easier to accumulate more human capital. This is only partially prices into wages, thus higher education needs some subsidies to reach efficient outcomes. Thus, a microeconomics analysis as performed here misses potentially important macroeconomic effects.
Ana Balcão Reis says things are not that simple. First, we have to keep in mind that only few people are credit constrained when it comes to college tuition. Indeed, most of those who are do not make it that far in the first place. Second, those who benefit from public higher education are also those who pay the most taxes, thus the welfare benefit for them is ambiguous. To sort this out, the paper builds a model with different levels of education and agents differing by ability, human capital and the capacity of their parents to pay (which depends on their own human capital).
First think about the marginal agents, those who are the last one to go to public university. They would prefer not to have this option, that is, have only private universities and not pay the associated taxes. But because they have to pay them and college is now cheaper, they choose to get educated with little benefit. Those who do not go to college do not to pay taxes and would thus vote against public higher education. And the richest pay more in taxes than what they would pay in tuition. So all those left in favor of public universities are the not too rich who would go to college anyway. The question is whether they are a majority.
There is one important aspect missing in this analysis, though. Higher education has a positive externality on others: a more educated workforce raises everyone's productivity, and it makes it also easier to accumulate more human capital. This is only partially prices into wages, thus higher education needs some subsidies to reach efficient outcomes. Thus, a microeconomics analysis as performed here misses potentially important macroeconomic effects.
Should universities focus on teaching or research?
The UK is going through a rather traumatic reform of the finances of its higher education system. There is much debate, both public and among academics, on how much of the burden should be carried by the students and how. If we take as given that universities are funded by public grants, how to allocated them is still complex, in part due to the dual goals of universities: teaching and research. Research grants are now quality driven, while teaching grants are mostly quantity driven. Given that their is a budget constraint, either at the government or at the university level, any economist would tell you there is a trade-off and choices need to be made.
John Beath, Joanna Poyago-Theotoky and David Ulph discuss how universities choose whether to focus on research or teaching. Universities are funded according to a formula depending on the number of students taught, the number of academics and their research quality, which depends itself on the academic/student ratio, Every academic gets the same pay, and universities maximize an objective based on the quality-weighted volume of research and the quality adjusted number of students, where the quality of teaching is a consequence of the academic/student ratio.
It is clear there is not going to be a free lunch. A university cannot be good at both teaching and research. As one plays around with the funding formula, all sorts of equilibria can emerge. For example, if research is well rewarded and a minimum quality of research is required for it to be funded, a bifurcation occurs where a few universities concentrate on research and others on teaching. Which funding formula is best for society remains open, though.
John Beath, Joanna Poyago-Theotoky and David Ulph discuss how universities choose whether to focus on research or teaching. Universities are funded according to a formula depending on the number of students taught, the number of academics and their research quality, which depends itself on the academic/student ratio, Every academic gets the same pay, and universities maximize an objective based on the quality-weighted volume of research and the quality adjusted number of students, where the quality of teaching is a consequence of the academic/student ratio.
It is clear there is not going to be a free lunch. A university cannot be good at both teaching and research. As one plays around with the funding formula, all sorts of equilibria can emerge. For example, if research is well rewarded and a minimum quality of research is required for it to be funded, a bifurcation occurs where a few universities concentrate on research and others on teaching. Which funding formula is best for society remains open, though.
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