Education and interest in politics

It is often claimed in popular debate that education is a "public good". This is generally invoked to justify public funding for education. What "public good" means exactly is usually undefined but there seems to be a general notion that higher levels of education somehow make people better citizens. For this reason economists and political scientists have looked at whether education makes people more likely to vote: it does.
One could also ask does education make people more interested in politics? The graph uses ESS data for Ireland to show a measure of interest in politics by education level completed. There is a correlation with those who have completed tertiary education being significantly more interested. Whether this is a causal link, of course, is a harder question.

(Perceived) Returns to Schooling and the SES gradient

Robert Jensen from Brown has an interesting paper in the latest QJE. An ungated version can be found here. It finds that students' perception of the returns to schooling is biased downwards. The key result is that providing more accurate information significantly lowers the drop-out rate for wealthier students, but not for those less well-off.

Macro Returns to Education

A new paper by Barro and Lee:

http://www.nber.org/papers/w15902

Abstract:
Our panel data set on educational attainment has been updated for 146 countries from 1950 to 2010. The data are disaggregated by sex and by 5-year age intervals. We have improved the accuracy of estimation by using information from consistent census data, disaggregated by age group, along with new estimates of mortality rates and completion rates by age and education level. We use these new data to investigate how output relates to the stock of human capital, measured by overall years of schooling as well as by the composition of educational attainment of workers at various levels of education. We find schooling has a significantly positive effect on output. After controlling for the simultaneous determination of human capital and output, by using the 10-year lag of parents‘ education as an instrument variable (IV) for the current level of education, the estimated rate-of-return to an additional year of schooling ranges from 5% to 12%, close to typical Mincerian return estimates found in the labor literature.

Some Links

1. It's not your peers, and it's not your friends: Some progress toward understanding the educational peer effect mechanism

2. Econometric Methods for Causal Evaluation of Education Policies and Practices:
A Non-Technical Guide

3. Denis the Dentist: people disproportionately choose careers whose labels resemble their names

4. http://www.babynamewizard.com/

5. Penelope Trunk: Brazen Careerist

6. Randomness, Luck, and other Situational Sources of Success and Failure

7. Why jobs obtained through networks may lower your earnings

8. Vive la Révolution!: Long term returns of 1968 to the angry students

9. Simultaneous behaviour: during the Winter Olympics in Edmonton (Canada) (HT: Eoin Rouine)

A non-benefit from education?

There is quite body of research looking at the effects of education on health. Generally these papers look at physical health and find a positive relationship. This one looks at mental health and finds no effect.
Does Education Shield Against Common Mental Disorders?
Edvard Johansson,Petri Böckerman,Tuija Martelin,Sami Pirkola,Karí Poikolainen
The paper examines the causal effect of education on common individual mental disorders in adulthood. We use a representative population health survey and instrumental variable methods. The estimates point to mostly insignificant effects of education on common mental disorders. We find that the length of education reduces the BDI (Beck Depression Inventory) measure at the 10% significance level, but has no effect when using the GHQ-12 (12-item General Health Questionnaire) or the probability of severe depression as a measure of mental health. These results cast doubt on the view that the length of formal education would be a particularly important determinant of common mental disorders later in life.
http://www.etla.fi/files/2380_Dp1202.pdf

External returns to education

There is a common belief that there are many other benefits to education other than hte effect on ones earnings although the evidence, it seemed to me, was underwhelming. This paper takes a different view.

How large are returns to schooling? Hint: Money isn't everything. P.Oreopoulos & K.G. Salvanes
This paper explores the many avenues by which schooling affects lifetime well-being. Experiences and skills acquired in school reverberate throughout life, not just through higher earnings. Schooling also affects the degree one enjoys work and the likelihood of being unemployed. It leads individuals to make better decisions about health, marriage, and parenting. It also improves patience, making individuals more goal-oriented and less likely to engage in risky behavior. Schooling improves trust and social interaction, and may offer substantial consumption value to some students. We discuss various mechanisms to explain how these relationships may occur independent of wealth effects, and present evidence that non-pecuniary returns to schooling are at least as large as pecuniary ones.
http://d.repec.org/n?u=RePEc:nbr:nberwo:15339&r=edu

Twins as an economic model

I have been somewhat sceptical about the use of twins as an economic model for some time. Just because its a good biological model doesn't mean that it will work for social sciences. Here is a paper that confirms my prejudices:

The Co-twin Methodology and Returns to Schooling – Testing a Critical Assumption

	Sandewall, Örjan , Cesarini, David & Johannesson, Magnus

Twins-based estimates of the return to schooling feature prominently in the labor economics literature. The validity of such estimates hinges critically on the assumption that within-pair variation in schooling is explained by factors which are unrelated to wage earning ability. This paper develops a framework for testing this assumption, and finds, using a unique dataset of monozygotic twins, strong evidence against it. Differences in adolescent IQ test scores predict within-pair variation in educational attainment, and including IQ in the wage equation causes within-pair point estimates for the returns to schooling to decline significantly. Our results thus cast doubt on the validity of estimates derived from the co-twin literature.

http://d.repec.org/n?u=RePEc:hhs:iuiwop:0806&r=edu

Do Universities Generate Agglomeration Spillovers?

The debate on social returns to universities is particularly important now given the pressure on public funding. The following study is of some relevance:

Do Universities Generate Agglomeration Spillovers? Evidence from Endowment Value Shocks
Shawn Kantor, Alexander Whalley
This paper quantifies the extent and magnitude of agglomeration spillovers from a formal institution whose sole mission is the creation and dissemination of knowledge -- the research university. We use the fact that universities follow a fixed endowment spending policy based on the market value of their endowments to identify the causal effect of the density of university activity on labor income in the non-education sector in large urban counties. Our instrument for university expenditures is based on the interaction between each university's initial endowment level at the start of the study period and the variation in stock market shocks over the course of the study period. We find modest but statistically significant spillover effects of university activity. The estimates indicate that a 10% increase in higher education spending increases local non-education sector labor income by about 0.5%.
http://d.repec.org/n?u=RePEc:nbr:nberwo:15299&r=edu

The non-effect of one's education on health

Does compulsory education lower mortality?

References and further reading may be available for this article. To view references and further reading you must purchase this article.

Valerie Albouy and Laurent Lequien

Recent studies have claimed to show a significant causal impact of education on health status. Their empirical strategy usually relied on changes in compulsory schooling laws.

Using a French longitudinal dataset, we focus on the effect of school leaving age on mortality at later ages. The two identifying shocks are the Zay and Berthoin reforms, which respectively raised the minimum school leaving age to 14 and 16 years. We implement a non-parametric regression discontinuity design, comparing cohorts born immediately before or after the reforms, and a parametric two-stage approach using information from a larger part of our sample.

None of these approaches reveals a significant causality of education on health. Despite the fact that these reforms increased education levels, and that subsequent declines in mortality are observed, none of these declines appears to be significant. We conclude with a discussion on possible limitations of these two reforms as identifying devices.

Journal of Health Economics Volume 28, Issue 1, January 2009, Pages 155-168

The non-effect of parents education on health

Parental education and child health: Evidence from a schooling reform

This paper investigates the impact of parental education on child health outcomes. To identify the causal effect we explore exogenous variation in parental education induced by a schooling reform in 1947, which raised the minimum school leaving age in the UK. Findings based on data from the National Child Development Study suggest that increasing the school leaving age by 1 year had little effect on the health of their offspring. Schooling did however improve economic opportunities by reducing financial difficulties among households.

References and further reading may be available for this article. To view references and further reading you must purchase this article.

Maarten Lindeboom, Ana Llena-Nozal and Bas van der Klaauw

Journal of Health Economics Volume 28, Issue 1, January 2009, Pages 109-131

University Quality and Graduate Wages in the UK

In a new IZA working paper, Iftikhar Hussain, Sandra McNally and Shqiponja Telhaj examine the links between various measures of university quality and graduate earnings in the United Kingdom. They explore the implications of using different measures of quality and combining them into an aggregate measure. Their findings suggest a positive return to university quality with an average earnings differential of about 6 percent for a one standard deviation rise in university quality. However, the relationship between university quality and wages is highly non-linear, with a much higher return at the top of the distribution. There is some indication that returns may be increasing over time.

http://ftp.iza.org/dp4043.pdf

Should Irish Students Turn Their 'Free-Fees' Campaign Towards Higher Education Grants?

Yesterday the HEA published the third Eurostudent Survey to be conducted in the Republic of Ireland; the report is available on the HEA website here. There is a short discussion of the report in today's Irish Independent (here), which quotes the report saying that "there are substantial negative effects of working beyond 20 hours per week. Up to this point, the effects of working extra hours do not seem to be important." Other findings are that:

- Some 65pc of students earn at least some income from employment
- Students' spending averages €1,086.64 per month
- The most popular job held by students is shop assistant, followed by working as waiters or waitresses and then bar staff

The third Eurostudent Survey reports on 2007 field-work that was conducted here with colleagues at the Geary Institute. Now we are at the start of 2009 - and with economic recession underway - the concern of working more than 20 hours a week during college is mostly a thing of the past. Despite this, student expenditure costs of approximately €1,000 a month (or €12,000 a year) still have to be financed. So average living costs of a four-year undergraduate degree are circa €50,000, and somehow they must be paid.

According to a report in today's Irish Times, over 20,000 students are expected to take to the streets of Dublin tomorrow to oppose the reintroduction of third-level fees, and to highlight the role they feel education should play in any economic recovery plan. It might be the case that a better use of the protest would be to re-direct the campaign towards a call for improved higher education grants.

The rationale for this stems from the unemployment problem that students now face. Instead of worrying about whether they are working too many hours, or wishing they had a handier number, many students are now lucky to have any job at all. A discussion on this issue is provided by Bridget Fitzsimons in the current edition of the UCD University Observer: "No part-time means full-time trouble...". "Student Advisor, Aisling O’Grady has noted 'a definite marked increase' in those visiting (UCD) Student Advisors for financial advice after being unable to find employment." For any students in severe financial difficulties, some options for advice and support are mentioned in the article. One comment about the new conditions facing students is provided by Juan Houlihan in 1st Arts:

"...I couldn’t go home every weekend for work, and I thought it would be easy to find work in Dublin. I’ve looked in a lot of places, but nowhere will even look at CVs. It’s difficult, and if I didn’t have grants to cover some expenses, I’d be in a lot of trouble. It’s hard to get through college..."

With the uncertain and unlikely prospect of getting a part-time job to cover living costs during higher education, students would gain considerably from an improved higher education grant. This could be a preferable option if there were to be an either/or scenario between 'free frees' or 'improved grants'. The re-introduction of fees in the context of an interest-free student loan system has been tabled by the Minister for Education, Batt O'Keefe. An interest-free lending initiative would mean that students would not have to worry about the cost of their higher education until they have secured post-graduate employment and are earning above a certain level of salary. In a detailed discussion of interest-free student loans on this blog, it was previously noted that the UK student loan system has the following features:

- repayments do not start until April of the year after students have completed their course
- repayments do not start until the student is earning more than 15,000 pounds
- the repayment is 9% of gross salary
- the repayment is transacted as an automatic deducation (through PAYE though this could as easily be a direct debit)
- there is no particular schedule for clearing the debt, but, if it has not been cleared 25 years after repayment began, or if the student turns 65 years old ---- then the remaining debt will be cancelled

In fact, the UK student loan system is a really good offer. Though it does mean that British taxpayers (particularly those that do not get the chance to attend higher education) sacrifice the time-value of their tax-pounds. In other words, they stump up cash so that other people can get a higher education. The money might otherwise be spent on things such as better policing, better healthcare or better primary school services. What's more, the loans on offer are subsidised by taxpayers so that there are some tax-pounds that will never go towards other public services. (What this means is that there really is no such thing as 'free fees' - as somebody else will pay the cost!). All that being said, the recipients of interest-free student loans shouldn't feel so bad, as there is such a thing as non-private returns to education (in other words, externalities - including more tax revenues for govt.).

So, it may be the case that some students would prefer to have 'interest-free student loans' as well as 'improved higher education maintenance grants', rather than just maintaining the status quo of 'free fees'. At present, to get a full maintenance 'grant' of €3,420, the maximum income limit for a family of four children is €38,675 a year. For more than eight children, it is €46,140 a year. Former education minister Niamh Bhreathnach, who abolished tuition fees, admitted she was disappointed at these figures. For more on the 'grant' and its history, see this previous blog post.

What we do know is that the annual maintenance support of €3,420 seems very low, and that it falls very far below the €12,000 that students are estimated to need for their annual expenditure (see Eurostudent 3). Without part-time employment opportunities to cover the difference, will every student comtinue to attend college? Furthermore, what about the students who are not entitled to a grant but can't get a part-time job? That is, those students from a four-kid family with an income above €38,675? A Geary working paper from 2007, "Household Characteristics of Higher Education Participants", suggests that eligibility for maintenance grants is an important factor for encouraging particpation in higher education.

All of this leads to the suggestion that a better use of tomorrow's protest would be to call for interest-free student loans and improved higher education grants (improvements to both the amount of the payment and the level of family-income at which the grant is payable). All that being said, 'interest-free student loans' combined with 'improved higher education grants' is a much more expensive prospect for the government compared to simply introducing interest-free loans, or for that matter, simply re-introducing student fees.

One thing is for certain, if the 'free fees policy' is definitely on the way out (and the govt. deficit is certainly putting this on the agenda), then students would be better served lobbying for an interest-free loan system rather than protesting against the inevitable. What might be needed now is some thought on how to generate short-term finance for interest-free student loans (and perhaps even improvements to grants). One suggestion is to issue ring-fenced special savings bonds. These bonds would bear interest in the same way as any other Irish govt. bond; however, the buyers of these bonds would also know that they are generating cash-flow to support Irish higher education.

Do Cognitive Skills Depend on Non-Cognitive Skills? And If So, What Does the Labour Market Reward?

In a previous post, I mentioned research on behavioural determinents of earnings by Bowles et al. (2001); these authors report that cognitive skills represent less than a fifth of the return to schooling. They suggest that the remaining 82% of the return to schooling could either be associated with more advanced cognitive skills that are not captured by basic measures, or with noncognitive skills. More recently, Pasche (2008) finds that over half the return to schooling is constituted of basic cognitive skills. Either way, the bias of non-cognitive personality traits is important when estimating the returns to education.

Research by Borghans, Meijers and ter Weel (reported at the AEA meeting earlier this month), examines the role of noncognitive skills in explaining cognitive test scores. They measure noncognitive skills both by personality traits and economic preference parameters; and the idea is that noncognitive skills might affect the effort people put into a test to obtain good results.

The authors experimentally varied the rewards for questions in a cognitive test to measure to what extent people are sensitive to financial incentives. To distinguish increased mental effort from extra time investments, they also varied the questions’ time constraints. Favourable personality traits such as high performance-motivation and an internal locus of control are associated with high test scores in the absence of rewards; which the authors say is consistent wiith trying as hard as possible.

In contrast, favourable economic preference parameters (low discount rate, low risk aversion) are associated with increases in time investments when incentives are introduced, consistent with a rational economic model in which people only invest when there are monetary returns.

The main conclusion of the research is that individual behavior in cognitive tests depends on noncognitive skills. This means that de-compositions of the returns to schooling may be biased towards cognitive skills in ways that have not been considered before. This underscores further the need to consider the bias of non-cognitive personality traits when estimating the returns to education.

What Do We Know About Non-Cognitive Personality, Education and Earnings?

Bowles et al. (2001) find that, on average, controlling for cognitive skills reduces the years of schooling coefficient by 18%. Cognitive skills therefore represent less than a fifth of the return to schooling. The remaining 82% of the return to schooling could either be associated with more advanced cognitive skills that are not captured by basic measures, or with noncognitive skills. A different finding was recently presented by Pasche (2008) - 'What is it About Schooling That the Labor Market Rewards? The Components of the Return to Schooling'. Pasche finds that over half the return to schooling is constituted of basic cognitive skills. Either way, the bias of non-cognitive personality traits is important when estimating the returns to education.

According to Linz and Semykina (2005), personality may affect earnings through gender; they find that women's earnings are affected by personality, while men's earnings are not; the "unexplained" portion of the gender wage gap falls by as much as 12% when personality traits are included. Mueller and Plug (2004) also find that gender is important - they show that antagonistic, emotionally stable and open men enjoy substantial earnings advantages over otherwise similar individuals; whereas the labour market appears to value conscientiousness and openness to experience for women. Heineck and Anger (2008) produce evidence for a robust wage penalty associated with an external locus of control, for both men and women.

Heineck (2009 - from the recent AEA meeting) finds evidence for a negative relationship between wages and agreeableness for men, a negative relationship between wages and neuroticism for females, and a positive relationship between openness to experience and wages for women. Borghans et al. (2008 - from the recent AEA meeting) suggests that people are most productive in jobs that match their style. An oversupply of one attribute relative to the other reduces wages for people who are better with the attribute in greater supply. According to Lee (2006), issues that require further study and resolution are 1) which traits create wage differentials, and 2) two-way causality: does personality affect the wage, or does a wage premium become an incentive for a person to adopt new memes?

Paywizard.org

Some interesting earnings data is being collected by the the Labour and Worklife Program at Harvard Law School - through their Paywizard.org website. The website allows US individuls to compare their earnings against what other people get for the same job in the same state with a free 'Salary Calculator'. In return, individuals are requested to keep the Calculator updated, by sharing their salary and job information. For a salary check on a 'postsecondary economics teacher' in New York, the following data is provided:

Total number of employed people within this occupation within this state 690.00

Mean hourly wage in Dollars: *
Annual mean wage in Dollars: 86130.00
Lowest hourly wage in occupation, 10% percentile: *
Highest hourly wage in occupation, 90% percentile: *
Lowest annual wage in occupation, 10% percentile: 46250.00
Highest annual wage in occupation, 90% percentile: 133520.00

Source: Bureau of Labor Statistics (May 2007) State Occupational Employment and Wage Estimates.

* = indicates that a wage estimate is not available
** = indicates that an employment estimate is not available
# = indicates a wage greater than $70.00 per hour or $145,600 per year

In addition, Paywizard.org is connected to the WageIndicator Network, a 75 country research program designed to enhance labor market transparency and to aid data-collection for social science research. For anyone interested in earnings data, this is an interesting project. There is no partner in Ireland yet, but in the UK data is being collected by the Trade Union Congress (TUC), Incomes Data Services (IDS) and the Mayor of London.

Does Skills Mismatch Lower Returns to Education?

A new IZA discussion paper by Nordin, Persson and Rooth (Education-Occupation Mismatch: Is There an Income Penalty?) "adds to the small literature on the consequences of education-occupation mismatches." The consequences of skills-matching and the measurement of skills-matching are issues that have been discussed on this blog a fair bit recently.

Nordin, Persson and Rooth use microdata from Statistics Sweden, but are forced to drop 36 percent of their sample due to restrictions on fields of education to well-defined categories. The authors state that this approach is necessary because some fields of education (e.g. in the humanities and languages) are either vague or cannot easily be matched with any specific occupation. Also, the authors exclude a further 11 percent of their sample because of missing occupation data. One way around these problems might be to use self-rated measures of skill-matching, from which wage penalties might be more accurately estimated.

Nordin, Persson and Rooth focus on the income penalty for field of education-occupation mismatches; they find that the penalty for such mismatches is large for both men and women. They also find that it is substantially larger than has been found for the US. Interestingly, the authors also control for cognitive ability and find that the "income penalty is not caused by ability, at least for Swedish men." The income penalty for men decreases with work experience which the authors suggest is an indication that education-specific skills and work experience are substitutes to some extent. "There is no evidence, though, that the mismatched individuals move to a matching occupation over time. Thus, for some, the income penalty seems to be permanent."