Handbook of the Economics of Education, Volume 1 (Handbooks in Economics) PDF
Preview Handbook of the Economics of Education, Volume 1 (Handbooks in Economics)
INTRODUCTIONTOTHESERIES The aim of the Handbooks in Economics series is to produce Handbooks for various branches of economics, each of which is a definitive source, reference, and teaching supplement for use by professional researchers and advanced graduate students. Each Handbookprovidesself-containedsurveysofthecurrentstateofabranchofeconomics intheformofchapterspreparedbyleadingspecialistsonvariousaspectsofthisbranch ofeconomics.Thesesurveyssummarizenotonlyreceivedresultsbutalsonewerdevel- opments,fromrecentjournalarticlesanddiscussionpapers.Someoriginalmaterialis also included, but the main goal is to provide comprehensive and accessible surveys. TheHandbooksare intendedto providenotonlyuseful referencevolumesfor profes- sional collections but also possible supplementary readings for advanced courses for graduatestudentsineconomics. KENNETHJ.ARROWandMICHAELD.INTRILIGATOR v CONTENTSOFTHEHANDBOOK VOLUME1 IntroductiontotheSeries ContentsoftheHandbook Preface Chapter1 PostSchoolingWageGrowth:Investment,SearchandLearning YonaRubinsteinandYoramWeiss Chapter2 Long-Term Trends in Schooling: The Rise and Decline (?) of Public Education in the UnitedStates SandraE.BlackandKennethL.Sokoloff Chapter3 HistoricalPerspectivesonRacialDifferencesinSchoolingintheUnitedStates WilliamJ.CollinsandRobertA.Margo Chapter4 ImmigrantsandTheirSchooling JamesP.Smith Chapter5 EducationalWagePremiaandtheDistributionofEarnings:AnInternationalPerspective FrancoPeracchi Chapter6 EducationalWagePremiumsandtheU.S.IncomeDistribution:ASurvey DonaldR.DeereandJelenaVesovic Chapter7 EarningsFunctions,RatesofReturnandTreatmentEffects:TheMincerEquationand Beyond JamesJ.Heckman,LanceJ.LochnerandPetraE.Todd vii viii ContentsoftheHandbook Chapter8 TheSocialValueofEducationandHumanCapital FabianLangeandRobertTopel Chapter9 WhyHasBlack–WhiteSkillConvergenceStopped? DerekNeal Chapter10 EducationandNonmarketOutcomes MichaelGrossman Chapter11 DoesLearningtoAddupAddup?TheReturnstoSchoolinginAggregateData LantPritchett Chapter12 InterpretingtheEvidenceonLifeCycleSkillFormation FlavioCunha,JamesJ.Heckman,LanceLochnerandDimitriyV.Masterov AuthorIndex SubjectIndex VOLUME2 IntroductiontotheSeries ContentsoftheHandbook Preface Chapter13 UsingWagestoInferSchoolQuality RobertSpeakmanandFinisWelch Chapter14 SchoolResources EricA.Hanushek Chapter15 DrinkingfromtheFountainofKnowledge:StudentIncentivetoStudyandLearn– Externalities,InformationProblemsandPeerPressure JohnBishop Chapter16 Schools,Teachers,andEducationOutcomesinDevelopingCountries PaulGlewweandMichaelKremer ContentsoftheHandbook ix Chapter17 HasSchoolDesegregationImprovedAcademicandEconomicOutcomesforBlacks? StevenRivkinandFinisWelch Chapter18 TeacherQuality EricA.HanushekandStevenG.Rivkin Chapter19 TeacherSupply PeterJ.Dolton Chapter20 Pre-School,DayCare,andAfterSchoolCare:Who’sMindingtheKids? DavidBlau Chapter21 TheCourtsandPublicSchoolFinance:Judge-MadeCentralizationandEconomicResearch WilliamA.Fischel Chapter22 IncomeandPeerQualitySortinginPublicandPrivateSchools ThomasJ.Nechyba Chapter23 PublicInterventioninPost-SecondaryEducation ThomasJ.Kane Chapter24 USHigherEducationFinance MichaelS.McPhersonandMortonOwenSchapiro Chapter25 IncomeContingentLoansforHigherEducation:InternationalReforms BruceChapman AuthorIndex SubjectIndex PREFACE There are many ways to date the development of the economics of education. In the 17thCentury, Sir William Petty beganwriting aboutthe valuationof lives in terms of theproductiveskillsofindividuals–aprecursorofhumancapitalconsiderations.Adam Smithfollowedacenturylaterwithdirectconsiderationoftheorganizationandfinance of education. Yet, the more natural dating is much more recent with the development andlegitimizationofthestudyofhumancapitalleadbyGaryBecker,JacobMincer,and T.W. Schultz.These initialforays have,however,been followed by a torrent of recent work. Theinitialhumancapitalcontributionsfocusedlargelyondifferentialwagesofindi- vidualsastheyrelatedtoskills.And,themostnaturalwaytoidentifydifferentialskills wastheamountofschoolingbyindividuals.Thecontinuingpowerofthisearlyworkis seeneasilybythemyriadofanalysesthatsimplynotethattheyrana“Mincerearnings function”–withnoneedtoexplainortocitetheoriginalsource. The field has developed and expanded in a number of directions for the past half century.Theworkontheimpactsofschoolingonobservableoutcomes–labormarket returns,health,andmore–hasgrown.Increasinglydetailedandsophisticatedanalyses havepushedthequestionsaskedandtheinterpretationsofexistingwork.Forexample, howdoesthesocialreturntoeducationrelatetotheprivatereturn?Doesthegrowthof nationsrelatetoschooling? Theeconomicsofeducationhasalsoreachedbackinthedirectionofunderstanding whatgoesoninschools.Whatfactorsinfluencethequalityandoutcomesofschools? How does institutional structure influence outcomes? How does finance interact with thelevelanddistributionofoutcomes? Whileeachofthesequestionsenteredthediscussionearlyinthemodernhistoryof theeconomicsofeducation,therecentexplosionofworkhasintroducednewdevelop- mentsandnewapproachesineachoftheseareas.Indeed,thestandardsofanalysishave changeddramaticallyasthevarioussubfieldshavedeveloped. Partoftheexplosionisundoubtedlyrelatedtothenewavailabilityofrelevantdata. Many countries have developed regularly available large surveys of households along with a variety of “outcome” measures. Extensive panel data sets on labor market out- comeshavegrownintheU.S.andincreasinglyinothercountries.Administrativedata on school operations are increasingly accessible to researchers. These sources of data arebeingcleverlyexploitedtobuildnewknowledgeabouttheeconomicsofeducation. Theheavyinfluenceofgovernmentsineducationalpolicyhasalsocontributed.Gov- ernments at all levels enter into many supply decisions – and they frequently look for analysesandevaluationsthatwillguidetheirdecisions. xix xx Preface Theseconditionshaveinducedacomplementarygrowthinthenumberofresearchers workingintheeconomicsofeducation.TheupsurgeinPh.D.thesesrelatedtoeducation issuesisremarkable.Similarly,whilethefieldwasonceveryskewedtoworkintheU.S. –againrelatedtotheavailabilityofU.S.data,thisisnolongerthecase. One implication of this growth is that the field is rapidly developing and chang- ing.Thechaptersinthesevolumesweredesignedtocoverthebroadrangeofexisting researchandtosuggestproductivelinesofdevelopment.Theydothat.Buteventherel- ativelyshortproductionlagsinthesevolumesimplythatanumberofnewandexciting worksareonlyhintedatinthechapters.Inshort,thereismuchmoreworktobedone asthisfieldunfolds. Avarietyoffactorswentintotheselectionofauthorsofthesechapters.Quiteclearly, a fundamental requirement was that the authors had to be leaders in the intellectual developmentofthevarioustopics.But,beyondthat,authorswereselectedbecausethey hadapointofview,onedesignedtoprovokethoughtandnewwork. The ideas put forward here are likely to be challenged in further work. And, some may not survive such challenges. The idea is not to write the final word on any of these topics, because each is the source of lively current debate. The idea instead is to provide an intermediate assessment of dynamic research areas in order to push the researchfurther.Perhapsthesuccesswillbejudgedbytheintensityoffuturechallenges tothinkingineachoftheareas. ThedevelopmentofHandbookchaptersisnotaneasytask.Blendingexistingwork into a picture that at once categorizes the current position and simultaneously pushes research forward takes skill, insight, and simply a lot of hard work. We wish to thank eachoftheauthorsforconscientiouslyconfrontingtheenormityoftheirassignedtasks. The effort was also aided by the editorial and production team that has developed intheHandbook series,nottheleastofwhichincludesthegeneraleditorsofKenneth ArrowandMichaelIntriligator.ItalsoincludesValerieTengandtheothersatElsevier. We also wish to thank the Bush School of Government and Public Service at Texas A&M.Theygenerouslyhostedaconferencewhereearlyversionsofthesepaperswere presented. EricA.Hanushek FinisWelch July2006 Chapter1 POSTSCHOOLINGWAGEGROWTH:INVESTMENT, SEARCHANDLEARNING YONARUBINSTEIN BrownUniversityandEitanBerglasSchoolofEconomics,Tel-AvivUniversity e-mail:[email protected],[email protected] YORAMWEISS EitanBerglasSchoolofEconomics,Tel-AvivUniversity e-mail:[email protected] Contents Abstract 2 1. Introduction 3 2. Wagesandemploymentoverthelifecycle–Afirstglance 5 2.1. Thepooleddata 6 2.2. Cohortsandcross-sections 8 2.3. Paneldata 8 2.4. Individualgrowthrates 11 2.5. Thequestions 17 3. Modelsofwagegrowth 17 3.1. Investment 18 3.2. Investmentinschoolandonthejob 20 3.3. Search 22 3.4. Comparisonofinvestmentandsearch 23 3.5. Puttingthetwotogether 24 3.6. Humancapitalandskills 25 3.7. Wages,productivityandcontracts 29 3.8. Unobservedproductivityandlearning 32 4. Basicfindingsandtheirinterpretation 35 4.1. Mincer’searningsfunction 35 4.2. Thevariancecovariancestructureofearnings 39 4.3. Labormobilityandwagegrowth 52 4.4. Learning 56 5. Dataappendix:Dataandsample-inclusioncriteria 62 HandbookoftheEconomicsofEducation,Volume1 EditedbyEricA.HanushekandFinisWelch ©2006ElsevierB.V. Allrightsreserved DOI:10.1016/S1574-0692(06)01001-4 2 Y.RubinsteinandY.Weiss 5.1. TheCPSindividual-levelrepeatedcross-sectiondataset 62 5.2. TheCPSmonthlylongitudinallymatcheddata 62 5.3. Thepanelstudyofincomedynamics 63 6. NationalLongitudinalSurveyofYouth(NLSY) 64 References 64 Abstract Thesurveypresentsbasicfactsonwagegrowthandsummarizesthemainideasonthe possiblesourcesofthisgrowth.Wedocumentthatwagegrowthhappensmainlyearly inthelifecycleandisthenassociatedwithincreasinglaborforceparticipationandhigh jobmobility.Wagegrowthduringthefirstdecadeinthelabormarket,isabout50%for high school graduates and about 80% for those with college or more. This growth is comparableinsizetotheaccumulatedcontributionofschoolingforthesetwogroups. We describe in detail models of wage growth that can explain these results, including investmentinhumancapital,searchandlearning.Wealsodiscusstherolesofcontracts insharingtherisksassociatedwithlearningaboutabilityandvaryingmarketconditions. Evidence supporting investment is the U shaped life cycle profile for the variance of wages. However, heterogeneity matters and individuals with relatively high life time earningshavebothahighermeanandahighergrowth.Evidencesupportingsearchis the high wage gains obtained from changing employers early in the career. Evidence forlearningaretheinitiallyrisinghazardofquittingandtherisingrewardsforAFQT scoresthatarenotobservedbythemarket. Ch.1: PostSchoolingWageGrowth:Investment,SearchandLearning 3 1. Introduction Perhaps the most widely estimated regression equation in economics is Mincer’s log- earningsfunctionthatrelatesthelogofindividualearningsorwagestoobservedmea- sures of schoolingand potentialwork experience;with a specificationthat is linear in years of schooling and quadratic in experience. This simple regression has been esti- mated in numerous studies, employing various data sets from almost every historical periodandcountryforwhichmicrodataareavailable,withremarkablyrobustregulari- ties.First,workers’wageprofilesarewellrankedbyeducationlevel;atanyexperience level, workers earn more, on average, as their schooling increases. Second, average wagesgrowatadecreasingrateuntillateinone’sworkinglifetime.Mostimportantly, theestimatedcoefficientsforschoolingandexperienceinalltheseregressionsfallinto asufficientlynarrowrangetoadmitacommoneconomicinterpretationintermsofrates ofreturnforinvestmentinhumancapital.Theestimatedcoefficientsofthelog-earnings functionhavebeenappliedtoawidevarietyofissues,includingceterisparibuseffectof schoolingonearnings,wagedifferentialsbygenderandrace,andtheevolutionofearn- ingsinequality.Mincer’s(1974)earningfunctionwasusedasthestatisticalplatformin allthesestudies.1 The human capital approach to wage growth over the life cycle, as developed by Becker(1975),Mincer(1958,1974)andBen-Porath(1967),emphasizestheroleofhu- mancapitalacquiredinschoolandonthejob.Workersfaceagiventradeoffbetween currentandfutureearnings,representedbyahumancapital“productionfunction”,and decidehowmuchtoinvest.Thewageofferedtoindividualsisdeterminedasaproduct oftheworker’sstockofhumancapitalandthemarket-determined“rentalrate”.Markets operatecompetitivelyandworkersarecompensatedfortheirinvestments.Ifindividuals are heterogeneous, then compensation applies only at the margin, while non-marginal workers receive rents for their scarce attributes. When market conditions change, due to technologicalchange for instance, the rental rate changes, as does perhaps the pro- duction function that describes the investment opportunities. Together, these lead to adjustmentsintheindividualinvestmentdecisionsthataffectwagegrowth. Becker(1975),Griliches(1977)andRosen(1977)havequestionedtheinterpretation that should be given to the regression coefficients of schooling and experience in the Mincer earning equation, and hence the validity of drawing policy conclusions from these coefficients. The main concerns are, first, the role of individual heterogeneityin ability and access to the capital markets and, second, the role of market frictions and specific investments in human capital. These concerns affect the statistical estimation proceduresbecausetheunobservedindividualattributesthatinfluenceinvestmentdeci- sionscanbiastheschoolingandexperiencecoefficientsinMincer’sequation.Equally importantistherecognitionthatifmarketsarenon-competitivebecauseofcreditcon- straints or the firm specific investments that create relational rents, then wages and 1 Heckman,LochnerandToddprovideaninsightfulperspectiveontheMincerearningregression,fiftyyears later.
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