Life cycle earnings, education premiums, and internal rates of return
Manudeep Bhuller, Magne Mogstad, Kjell G. Salvanes22 September 2014
The impact of education on earnings over the life cycle is a critical factor for policy decisions ranging from education to taxation and pensions. This column exploits a unique Norwegian population panel data set to estimate an internal rate of return to additional schooling of about 10%. The standard Mincer-regression approach is also shown to substantially underestimate schooling’s rate of return.
Joseph G. Altonji, Prashant Bharadwaj, Fabian Lange
Many empirical studies use cross-section data to estimate Mincer regressions of log earnings on years of schooling and (potential) experience (see the review articles by Card 1999, Harmon et al. 2003, Psacharopoulos and Patrinos 2004, and Heckman et al. 2006). The problem of selection bias can be addressed by controlling for correlated determinants of earnings or with an instrumental variable for schooling. However, it is not clear how the coefficient on schooling should be interpreted.
Raphael Boleslavsky, Christopher Cotton16 August 2014
Grade inflation is widely viewed as detrimental, compromising the quality of education and reducing the information content of student transcripts for employers. This column argues that there may be benefits to allowing grade inflation when universities’ investment decisions are taken into account. With grade inflation, student transcripts convey less information, so employers rely less on transcripts and more on universities’ reputations. This incentivises universities to make costly investments to improve the quality of their education and the average ability of their graduates.
Since the early 1980s, the mean grade point average at American colleges and universities has risen at a rate of between 0.1 and 0.15 points per decade. Most of this increase can be attributed to an increase in the share of As assigned (which now comprise nearly half of all grades), with significant drops in the assignment of lower grades (Rojstaczer 2011 and Rojstaczer and Healy 2012).
Complexity science is changing the way we think about social systems and social theory. Unfortunately, economists’ policy models have not kept up and are stuck in either a market fundamentalist or government control narrative. This Vox Talk argues for a new, more flexible policy narrative, which envisions society as a complex evolving system that is uncontrollable but can be influenced.
Institutions, trade shocks, and regional differences in long-run educational and development trajectories
André Carlos Martínez, Aldo Musacchio, Martina Viarengo 09 July 2014
Institutions are known to play a powerful and enduring role in countries’ divergent levels of economic development. This column presents evidence that institutions matter for within-country inequality, too. In Brazil, changes in export prices and export tax revenues led to an increase in education spending in states that experienced commodity booms, which increased the number of schools and improved educational outcomes such as literacy rates. However, the effect was limited in states where slavery was predominant in colonial times.
Understanding the determinants of long-run socio-economic development is a major concern for academics and policymakers in many countries around the world. In particular, beyond understanding differences in development or educational and other outcomes across countries, the origins of within-country inequality are now a fundamental issue, given the impact inequality has on the long-run prosperity of nations.
Davide Cantoni, Yuyu Chen, David Y. Yang, Noam Yuchtman, Y. Jane Zhang29 May 2014
Schooling changes are associated with ideological ones but it is difficult to claim a causal relationship. This column attempts to analyse the causal effect of curriculum changes in China on shaping preferences of students. The new curriculum moves one’s belief about democracy by about 25% of a standard deviation in the direction desired by the government. The findings suggest the state can use education to promote socially-useful beliefs and cultivate good citizenship.
Education shapes young minds. Contemporary debates rage on whether it also shapes people’s political views, attitudes, and their values. Examples range from teaching of evolution in US schools, to the role of madrassas in the Islamic world, and the coverage of World War II in Japanese history textbooks. In 2012, an attempt to introduce a mainland Chinese curriculum into Hong Kong schools led to tens of thousands of people taking to the streets in protest.
Scholars across the social sciences have argued that schools play an important role in shaping political attitudes:
The mainstream economics curriculum needs an overhaul
Diane Coyle04 May 2014
The undergraduate economics curriculum is hugely influential, since today’s undergraduates are tomorrow’s policymakers. The massive policy failures before and after the Global Crisis have thus prompted a rethink. This column argues that there is a reasonable degree of consensus on the need for curriculum reform, but no agreement on whether this means rejecting the basic building blocks of the subject. Nevertheless, undergraduate courses in five or ten years will almost surely have changed considerably in character.
One of the delayed consequences of the financial crisis is a widespread and apparently growing desire to change how economics is taught. Students in a number of countries, including vocal groups in Chile and the UK, have recently intensified the demand for reform. One recent example is a report from the Post-Crash Economics Society at the University of Manchester (Post-Crash Economics Society 2014).
Human capital and income inequality: Some facts and some puzzles
Amparo Castelló-Climent, Rafael Doménech23 April 2014
Most developing countries have made a great effort to eradicate illiteracy. As a result, the inequality in the distribution of education has been reduced by more than half from 1950 to 2010. However, inequality in the distribution of income has hardly changed. This column presents evidence from a new dataset on human capital inequality. The authors find that increasing returns to education, globalisation, and skill-biased technological change can explain why the fall in human capital inequality has not been sufficient to reduce income inequality.
The rise of income inequality in many countries from 1985 onwards, and particularly during the recent crisis, has prompted a current debate on the causes and consequences of higher inequality and its effects on future growth (see, for example, OECD 2011, IMF 2014, or Ostry et al. 2014). As a result, and despite the slight reduction from 1960 to 1985, the average income Gini coefficient for developing countries was almost the same in 1960 (0.42) as it was in 2005 (0.41).
Gregory Clark talks to Viv Davies about his new book titled "The Son Also Rises: Surnames and the History of Social Mobility". Using surname data from eight countries, the study concludes that fate and social status is determined by ancestry and that social mobility rates are lower than conventionally estimated, they do not vary across societies and are resistant to social policies. Effectively, capitalism has not led to pervasive, rapid mobility. The interview was recorded in London in March 2014.
Drinking during pregnancy and children’s test scores
Sarah Lewis, Stephanie von Hinke Kessler Scholder, George L Wehby, Luisa Zuccolo08 March 2014
Excessive drinking during pregnancy is known to harm the foetus, but estimating the effects of moderate prenatal alcohol consumption is difficult, since mothers who choose to drink may differ systematically from those who do not. This column presents recent research showing that a genetic variant in a maternal alcohol-metabolising gene (ADH1B) is negatively related to prenatal alcohol exposure, and unrelated to any of the background characteristics associated with prenatal drinking. Using this genetic variant as an ‘instrumental variable’, the authors find strong negative effects of prenatal alcohol exposure on child educational achievement.
Harald Tauchmann, Silja Göhlmann, Till Requate, Christoph M Schmidt
The US Surgeon General first published a report on drinking during pregnancy in 1981, drawing attention to the link between prenatal alcohol consumption and birth defects (Office of the US Surgeon General 1981). The detrimental effects of excessive drinking during pregnancy are now well-known – it potentially leads to a pattern of mental and physical defects known as Foetal Alcohol Spectrum Disorder. The effects of low-to-moderate drinking, however, are less conclusive, and there is no consensus as to what level of exposure is toxic to the foetus.
More time spent on television and video games, less time spent on studying?
Tomohiko Inui, Ryoji Matsuoka, Makiko Nakamuro16 January 2014
Parents worry that their children waste too many hours playing video games or watching TV that would be better spent studying. Whereas past research has focused on teenagers, this column presents evidence on the causal effects of study and leisure hours for children of elementary school age, when key lifetime habits are being developed. Video entertainment is found to be a less significant determinant of time spent studying than parental involvement (such as supervision).
Many parents believe that TV and video games are ‘idiot boxes’ that rot their children’s minds and crowd out study time. We agree with this general perception, but add the caveat that less time spent on TV or video games does not automatically lead to more time spent on studying. It is easy to detect the correlation but harder to determine causality. If a causal effect is misattributed, keeping children away from idiot boxes and forcing them to their desks may be simply a waste of effort.