NBER Paper: Heckman and Jacobs: Polices to Create and Destroy Human Capital in Europe

Policies to Create and Destroy Human Capital in Europe

James J. Heckman, Bas Jacobs

NBER Working Paper No. 15742*
Issued in February 2010
NBER Program(s): ED LS PR

Trends in skill bias and greater turbulence in modern labor markets put wages and employment prospects of unskilled workers under pressure. Weak incentives to utilize and maintain skills over the life-cycle become manifest with the ageing of the population. Policies to promote human capital formation reduce welfare state dependency among the unskilled and offset inefficiencies in human capital formation. Skill formation features strong dynamic complementarities over the life-cycle. Investments in the human capital of children have higher returns than investments in the human capital of older workers. There is no trade-off between equity and efficiency at early ages of human development but there is a substantial trade-off at later ages. Later remediation of skill deficits acquired in early years often does not meet the cost-benefit criterion. Positive returns to active labor market and training policies are doubtful. Skill formation is impaired when the returns to skill formation are low due to low skill use and insufficient skill maintenance later on in life. High marginal tax rates and generous benefit systems reduce labor force participation rates and hours worked and thereby lower the utilization rate of human capital. Tax-benefit systems redistribute resources from outsiders to insiders in labor markets, which can be both distortionary and inequitable. Actuarially fairer early retirement and pension schemes reduce the incentives to retire early and strengthen incentives for human capital investment by increasing the time-horizon over which returns to human capital are harvested.

Human Capital Development Before Age Five

New NBER working paper by Douglas Almond & Janet Currie

Abstract:

This chapter seeks to set out what Economists have learned about the effects of early childhood influences on later life outcomes, and about ameliorating the effects of negative influences. We begin with a brief overview of the theory which illustrates that evidence of a causal relationship between a shock in early childhood and a future outcome says little about whether the relationship in question biological or immutable. We then survey recent work which shows that events before five years old can have large long term impacts on adult outcomes. Child and family characteristics measured at school entry do as much to explain future outcomes as factors that labor economists have more traditionally focused on, such as years of education. Yet while children can be permanently damaged at this age, an important message is that the damage can often be remediated. We provide a brief overview of evidence regarding the effectiveness of different types of policies to provide remediation. We conclude with a list of some of (the many) outstanding questions for future research.

Nber Working Paper No. 15827

Inter generational effects

Intergenerational transmission of human capital in early childhood

By:	Coneus, Katja Sprietsma, Maresa

It is a well-known fact that the level of parents' education is strongly correlated with the educational achievement of their children. In this paper,we shed light on the potential channels through which human capital is transmitted from mothers to their children in early childhood. The main channels through which maternal human capital benefits the child's verbal and social skills are birth weight and father's support. Moreover,reading stories to the child is most relevant for the transmision of verbal skills whereas for social skills, a crucial channel for maternal human capital is the attendance of institutional childcare.
http://d.repec.org/n?u=RePEc:zbw:zewdip:09031&r=edu

The Labor Market Returns to Cognitive and Noncognitive Ability: Evidence from the Swedish Enlistment

Lindqvist, Erik (Research Institute of Industrial Economics (IFN))
Westman, Roine (New York University)

IFN Working Paper No. 794, 2009

We use data from the military enlistment for a large representative sample of Swedish men to assess the importance of cognitive and noncognitive ability for labor market outcomes. The measure of noncognitive ability is based on a personal interview conducted by a psychologist. Unlike survey-based measures of noncognitive ability, this measure is a substantially stronger predictor of labor market outcomes than cognitive ability. In particular, we find strong evidence that men who fare badly in the labor market in the sense of long-term unemployment or low annual earnings lack noncognitive but not cognitive ability. We point to a technological explanation for this result. Noncognitive ability is an important determinant of productivity irrespective of occupation or ability level, though it seems to be of particular importance for workers in a managerial position. In contrast, cognitive ability is valuable only for men in qualified occupations. As a result, noncognitive ability is more important for men at the verge of being priced out of the labor market.

Students' Earnings Expectations

There is a new working paper by César Alonso-Borrego and Antonio Romero-Medina (from the Economics Department in Universidad Carlos III de Madrid) on students' earnings expectations. The authors provide evidence on the perceived economic value of higher education to college students in terms of their reported expected and shadow wages. The results show that predictions for expected wages are similar across gender and become closer to actual wages as students approach graduation. The authors suggest that this is consistent with an improvement in the quality of student information used to forecast wages.

The Impact of Employment during College on Academic Performance

Jeffrey S. DeSimone (NBER Working Paper 14006; May 2008) looks at the impact of employment during college on academic performance. DeSimone uses the Harvard College Alcohol Study; waves: 1993-2001, and considers the problem of unobserved heterogeneity. Using two-stage GMM regressions, he instruments work hours using paternal schooling and being raised Jewish, which are hypothesized to "reflect parental preferences towards education manifested in additional student financial support but not influence achievement conditional on maternal schooling, college and class."

DeSimone finds evidence for the identifying assumptions of instrument strength and orthogonality. The GMM results show that an additional weekly work hour reduces current year GPA by 0.011 points, roughly five times more than the OLS coefficient. The effects are stable across specifications, time, gender, class and age, but vary by health status, maternal schooling, religious background and race/ethnicity.