This week in Class Notes:
Lack of college readiness hampers investment in human capital and can lead to growing income inequality
The college earnings premium has increased over the past few decades and remains at a consistently high level. Why haven’t college enrollment and graduation rates increased at a similar pace? In their new work, Kartik Athreya and Janice Eberly use a quantitative model and data on enrollment and college reach to solve this conundrum. Their main finding is that risk plays a central role in hindering human capital investment. Prospective students are less responsive to college award increases if their chances of graduation after enrollment are slim. The data shows that students who have the lowest risk of dropping out are already enrolling in college. It is the high risk students who do not enroll. These students, in particular, are insensitive to the college premium as their expected value is dampened by the risk of dropping out. The model suggests that even if an increase in college premium results in an increase in enrollment, the increase in achievement will be significantly less. There are two long-term takeaways. First, college readiness is a major barrier to increasing enrollment and college attainment. Second, an increase in college premiums without a significant improvement in high school graduates’ college readiness will go hand in hand with an increase in income inequality.
Stricter rules for adult disability insurance increased their children’s later income
Does a parent’s participation in a social safety net program affect their children? Given the strong selection effects in these programs, it is difficult to get causal evidence here. To solve this problem, Gordon B. Dahl and Anne C. Gielen are investigating a 1993 change in insurance policy in the Netherlands that placed stricter restrictions on disability insurance (DI) and its amount. It is crucial that the policy change only applies to FDI recipients under 45 years of age, while recipients over 45 years of age continue under the existing, milder policy framework. The stricter policy resulted in a 4% decrease in the number of beneficiaries and a 10% decrease in annual benefits. This decline in DI created a variety of intergenerational spillover effects. First, children whose parents are subject to the stricter DI rules are 11% less likely to participate in DI. Second, as children grow up, their taxable income increases. Third, participation in other welfare programs (as adults) is not affected. This suggests that the stricter DI will both reduce government spending and increase revenue over time through higher tax payments for children. Interestingly, if parents have stricter DI rules, their children are less likely to commit a crime or use prescription drugs for mental disorders in adulthood. These children also invest in more years of education than their peers. Taken together, this suggests that the far-reaching effects of FDI participation will also be felt in the next generation.
Highly standardized charter school models repeat their effectiveness as they expand
Can high quality charter schools repeat their successes in new locations as they expand their programs? Sarah R. Cohodes and her co-authors are investigating the expansion of Boston’s No Excuses charter school program, which doubled the number of schools in the city from 16 to 32 between 2010 and 2014. A set of practices that require rigorous discipline , longer school hours and frequent teacher feedback. Before the expansion, the program was found to be effective in increasing test scores, decreasing teenage pregnancies, and increasing college attendance. Using data from school admission lotteries, they find that no excuses schools have been able to maintain their effectiveness even after the expansion. Already one year of attendance led to significant gains in both math and English test results. Charter schools can increase their success in part because their highly standardized school models minimize the discretion of teachers, so that a reduction in teacher quality caused by the program expansion may not significantly affect the effectiveness of the school.
Top Chart: The number of black adults with a bachelor’s degree or higher has doubled since 2000
This week’s top chart shows that the proportion of black adults with a post-secondary degree has increased steadily over the past 20 years. The number of black adults aged 25 and over with at least a bachelor’s degree has more than doubled to 6.7 million.
Chart source: Pew Research Center analysis of the 2000 ten-year census and the ACS for 2006-2019
Choice Opinion: Biden’s Infrastructure Act re-introduces the US economy and the role of government
“The infrastructure bill is a complete departure from the Let-the-Market-Handle-It approach and instead reminds of the massive government investments made by the New Deal and the Dwight D. Eisenhower administration. During these decades the US has expanded its power grid, created the freeway system, built the suburbs, modernized and expanded the universities, and spent much more money on research. Biden’s bill basically looks like an iteration of that effort, but it focuses more on climate change and racial inclusion, ”writes Noah Smith.
Self-promotion: More comprehensive and recent data is required to conduct economic research on racism and discrimination
Randall Akee and Marcus Casey show that the study of race and racism “has long been hampered by the relative lack of longitudinal data collected on relevant markers of discrimination, racism and related long-term outcomes”. A panel of experts recently convened by the American Economic Association’s Economic Statistics Committee highlighted three main obstacles to research into the breed. First, prominent longitudinal datasets such as the National Longitudinal Study of Youth, the Survey of Consumer Finance, and the Panel Study of Income Dynamics often have small sample sizes for groups such as Asians, Native Americans, and Hispanics. Second, many instances of racism in society are not easy to grasp. The conversations “behind closed doors”, in which, for example, hiring, promotions and loan decisions are made, are not observed directly in the data set. Akee and Casey call for novel data collection methods that give us insight into these types of interactions. Third, administrative records collected at the federal and state levels are not linked well enough to allow racial disaggregation and analysis. Their conclusion: good economic research on racism starts with good data.
For your calendar: social policies to protect families, financial security and worker mobility, and use of evidence to help shape public order
Rethinking unemployment insurance and housing benefits: measures to protect employees and families
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- The Hamilton Project in Brookings
- Tuesday, April 13, 2021 10:30 a.m. – 12:30 p.m. EDT
The Future of Workers’ Financial Security: The Relationship Between Work and Performance
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- WorkRise
- Wednesday, April 28, 2021 1:00 p.m. – 2:00 p.m. EDT
Updates from Pathways Clearinghouse: Using Implementation Details
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- Ways to Work Evidence Clearinghouse
- Thursday, April 29, 2021 3 p.m. – 4 p.m. EDT
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