Lecture7 - Growth Returns to Education U.S. Enrollment...

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Unformatted text preview: Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe Education and the Human Capital Century American Economic History University of California, Berkeley Department of Economics September 21, 2010 Econ 113 (UC Berkeley) Lecture 7 9/21/2010 0 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe Today's Agenda: Rise of formal education TFP was important for American economic growth - includes labor quality How well does education account for regional differences in growth? Why did U.S. educational system expand long before Europe's? When did schooling become more important than on-the-job training? When did it become important for the masses to be educated? When did governments get involved in education? Why didn't children always attend school? What are the benefits and costs of attending school? Econ 113 (UC Berkeley) Lecture 7 9/21/2010 1 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe Human capital accumulation and economic growth Technology transfer: poorer countries could adopt technology of richer ones Requires knowledgeable managers to adopt efficient means of production Human Capital: determines ability to learn Knowledge is acquired through formal schooling and on-the-job training Growth: human capital improves labor quality and efficiency of production Encompassed in A in growth accounting Should convergence when production methods are learned from leaders Econ 113 (UC Berkeley) Lecture 7 9/21/2010 2 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe Education correlated with GDP throughout historical U.S. Human Capital and Growth 365 8.5 SC 1950 NA 1920 NA 1950 W 1950 NC 1950 SA 1950 W 1920 ln Income Per Worker, 1967 dollars 8 NA 1880 NA 1900 NC 1900 NC 1920 W 1900 W 1880 7.5 SC 1920 NC 1880 SA 1920 SC 1900 7 SA 1900 SC 1880 SA 1880 4 ln Human Capital Stock Per Worker, 1967 dollars FIGURE 1 EDUCATION-BASED HUMAN CAPITAL 5 6 7 from N-North, of The Report of the Commissioner of Education and Note:annual issues S-South, A-Atlantic, C-Central, W-West. Population Redistribu- Notes: Calculations are based upon: Richard A. Easterlin's income estimates, education data tion and Economic Growth: United States, 18701950. The human capital stock measures are adjusted for migration using Lee's Source: in detail. (2004). migration data. The Appendix describes the creation of this Connolly measure Sources: Easterlin, "Regional Growth"; and Lee, "Migration Estimates." Econ 113 (UC Berkeley) Lecture 7 9/21/2010 tion-based human capital per worker and income per worker in the 3 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe Education improves cross-country growth: 1960-2000 Econ 113 (UC Berkeley) Lecture 7 9/21/2010 4 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe Education improves cross-country growth: 1870-1950 Econ 113 (UC Berkeley) Lecture 7 9/21/2010 5 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe Model on school attendance Consider the following 2 period-model: In period 1, the child can attend school or work In period 2, the child will work For simplicity, will not work beyond period 2 Costs C to attend school: tuition, transportation, books.... Interest rate of r: for first-period earnings Multiply first-period earnings by 1 + r to compare value with 2nd period "A dollar today is worth less than a dollar tomorrow" Econ 113 (UC Berkeley) Lecture 7 9/21/2010 6 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe Earnings from Attending School vs Not Attending Child labor: how much will be earned without attending school? Let w1 and w2 be the earnings of the first and second periods Will earn w1 (1 + r) + w2 Schooling: How much will be if the child attends school? Let E2 be the earnings due to school, with no first-period earnings Will earn E2 -C(1 + r) Assume that earnings will be larger as a result of school: E2 > w2 Econ 113 (UC Berkeley) Lecture 7 9/21/2010 7 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe When do children attend school? Attend school if earnings from schooling exceeds earnings from no schooling: E2 -C(1 + r) > w1 (1 + r) + w2 E2 - w2 > (C + w1 )(1 + r) E2 w2 (1+r)(C+w1 ) w2 -1 > Equivalently, the child will attend school if the benefits exceed the costs In the final expression, left side are the benefits of attending school Right side are the costs Econ 113 (UC Berkeley) Lecture 7 9/21/2010 8 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe Benefit-Cost Analysis of Attending Schooling Benefit-Cost Analysis: E2 w2 -1 > E2 w2 (1+r)(C+w1 ) w2 Benefits: earnings premium of -1 How much additional earnings will be made as a result of school? What is the (economic) returns to schooling? E2 > w2 E2 w2 >1 E2 w2 -1 > 0 Costs: sum of direct and indirect costs C denotes direct costs of schooling w1 represents the opportunity cost Econ 113 (UC Berkeley) Lecture 7 9/21/2010 9 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe How is the returns to schooling measured? Regression: collect earnings and education data on individuals Provides the average income-returns to education (private returns) Earnings: Natural logarithm of earnings Distribution of earnings is log-normal Provides percentage interpretation in the regression Schooling: Defined based on data and question at hand Returns to high school: dummy for high school completion Returns to one-additional year: number of years completed Econ 113 (UC Berkeley) Lecture 7 9/21/2010 10 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe Returns to education model y = 0 + 1 s + y is log(earnings) s is measure of schooling 0 and 1 are parameters to estimate is an error term to make this equation hold for all individuals 1 : returns to schooling Percent wage premium for having attended if s is ever attended school If it is 0.1, then the returns is 10%, and E2 w2 = 1.1 Comparison is implicitly to low-skilled industries Interpretation changes with definition of s Econ 113 (UC Berkeley) Lecture 7 9/21/2010 11 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe Increased demand for skilled workers increases returns Suppose industry is teaching, and demand for teachers increases Demand wages returns to education Econ 113 (UC Berkeley) Lecture 7 9/21/2010 12 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe Increased educational enrollment can reduce returns Suppose supply of potential teachers increases in response Wages then decline in new equilibrium Why would this happen? If school enrollment increased. Why might school enrollment increase? In response to demand. Econ 113 (UC Berkeley) Lecture 7 9/21/2010 13 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe Did all children attend school? Econ 113 (UC Berkeley) Lecture 7 9/21/2010 14 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe School enrollment in U.S. rose over time School Enrollments/5 to 19 Year Olds 100 90 80 70 60 50 White, both sexes Non-white, both sexes 40 30 20 10 0 1850 1870 1890 1910 1930 1950 1970 1990 2010 Source: Goldin (1999). Econ 113 (UC Berkeley) Lecture 7 9/21/2010 15 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe Why didn't all children attend school? Normative: Should everybody attend school is not the discussion Positive: Why didn't all children attend school? 1 2 Benefits too low: returns too low in skilled work Costs too high: direct and/or indirect costs too high Econ 113 (UC Berkeley) Lecture 7 9/21/2010 16 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe Benefits: returns in teaching varied by region circa 1910 Source: Kaboski and Logan (2007). Regional integration (or lack thereof) accounts for differences in returns Econ 113 (UC Berkeley) Lecture 7 9/21/2010 17 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe What about costs? Direct costs: tuition, travel, textbooks Tuition and textbooks not trivial, but not substantial Travel, in part, determined by density of schools and infrastructure Long history of highly concentrated one-room schools Indirect costs: child labor Extra income needed to help some families make ends meat Could help account for racial differences in enrollment No longer concern as Americans have become wealthier Large concern in developing countries Econ 113 (UC Berkeley) Lecture 7 9/21/2010 18 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe When did public schools spread throughout U.S? Example common school Econ 113 (UC Berkeley) Lecture 7 9/21/2010 19 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe Timeline of U.S. Education: Primary Schooling Common Schools: late 18th century through early 1900s Existed everywhere for free children to promote education for all Publicly maintained, non-secular, and belonged to the community Initially not free, requiring tuition or "rate bills" Elementary Schools: diffused in towns in all states by 1870 Graded elementary schools, whereas common school was one-room Mass literacy by 1840both men and women, urban and rural Econ 113 (UC Berkeley) Lecture 7 9/21/2010 20 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe Timeline of U.S. Education: Higher Education High Schools: Towns supplied high schools circa 1910 First to non-industrial, rich, relatively homogenous areas Spread throughout U.S. by 1940 A terminal degree, not preparation for college College: private colleges established early in Northeast and South Public schools began in the South (elite) and West (egalitarianism) Morrill Act (1862): state schools served state interests (e.g. Texas A&M) GI Bill (1944) paid college tuition for returning soldiers Enrollment soared substantially in 1950s, 60s, and 70s Econ 113 (UC Berkeley) Lecture 7 9/21/2010 21 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe Education as a quasi-public good Why is education usually publicly provided and publicly funded? Positive externalities of an educated citizenry Total returns greater than E2 , which is only private returns Democracies require literate citizens Educated citizens are expected to engage less in crime Capital market imperfections: difficulty in borrowing money for school E2 is not known, as young people are myopic Econ 113 (UC Berkeley) Lecture 7 9/21/2010 22 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe Formal Education Expanded: 1770-1800 Source: Grubb (1992). Econ 113 (UC Berkeley) Lecture 7 9/21/2010 23 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe 348 Goldin High school movement diffused rapidly: 1910-1940 en 1 Pi 0.9 O Total Enrollment Rate ryS a O B CJ o u 0.8 0.7 a 0.6 u C/3 0,5 Pri vate Graduation Rate 0.4" 0.3 0.2" -o 2 3 OH 0.1 " 0 1890 1900 1910 1920 1930 Year 1940 1950 1960 1970 FIGURE l SECONDARY SCHOOL ENROLLMENT AND GRADUATION RATES: ENTIRE UNITED STATES Notes: Enrollment by olds; graduation figures are Source: Goldin figures are dividedThe the number of 14 to 17-yearfemales in public and private (1998). total includes both males and divided by the number of 17-year olds. schools. Source: U.S. Department of Education, 120 Years, tables79 and 19. Econ 113 (UC Berkeley) Lecture 9/21/2010 24 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe Why did the high school movement emerge? "New" economy emerged early 20th century demanding more skilled workers Big business: demand for secretaries, typists, clerks Manufacturing: industries used batch methods, drawing upon science Farmers: recognized value in learning about new machinery Communities recognized that returns to high school education increased Political support for high schools in more homogenous communities Also varied directly with ability to finance high schools Econ 113 (UC Berkeley) Lecture 7 9/21/2010 25 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe Growth of white collar employment spurs high schools Econ 113 (UC Berkeley) Lecture 7 9/21/2010 26 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe Returns to education greater for h.s. than common school Source: Goldin (2001). Econ 113 (UC Berkeley) Lecture 7 9/21/2010 27 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe H.S. movement strongest in West, Midwest, and North 280 Goldin Public and Private Graduation Rate, 1928 38.8 to 55.6% 31.6 to 38.7% 18.4 to 31.5% 11.8 to 18.3% FIGURE 4 PUBLIC AND PRIVATE HIGH SCHOOL GRADUATION RATES BY STATE, 1928 Notes: public Source:Theschools and private the number rate is the number thegraduates from all public and private Goldin (2001). graduation of 17-year olds in of state. secondary divided by Source: Goldin, "America's Graduation from High School." Econ 113 (UC Berkeley) Lecture 7 9/21/2010 28 / 40 Growth 1910 Returns to Education 1920 1940 1930U.S. Enrollment Middle Atlantic Public1950 Education U.S. 1960 vs. Europe Higher high school attendance rate for women 0.7 0.6 I i c 0.5 " 1 o 60 0.4 0.3 Females S 0.2 0.1 1910 1920 1930 1940 East North Central FIGURE 4 1950 1960 PUBLIC HIGH SCHOOL GRADUATION RATES BY SEX: MIDDLE ATLANTIC AND EAST NORTH CENTRAL REGIONS Source: Goldin (1998). Econ 113 (UC Berkeley) Lecture 7 9/21/2010 29 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe High school movement does not increase college-going Source: Goldin (1998). Econ 113 (UC Berkeley) Lecture 7 9/21/2010 30 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe Claudia Goldin, College enrollment soarsLawrence F. Katz, and Ilyana Kuziemko 135 during mid-20th century Figure 1 College Graduation Rates (by 35 years) for Men and Women: Cohorts Born from 1876 to 1975 0.4 0.3 Fraction graduated Males 0.2 Females 0.1 0.0 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 Birth year Source: Goldin, Katz, andsex the fraction of each birth cohort who had completed at least four Notes: The figure plots separately by Kuziemko (2006). years of college by age 35 for the U.S. born. When the IPUMS data allows us to look directly at thirty-five-year-olds in a given year, we use that data. Since educational attainment data was first collected in the U.S. population censuses in 1940, we need to infer completed schooling at age 35 for cohorts born Econ 113 (UC Berkeley) Lecture 7 9/21/2010 Sources: 1940 to 2000 Census of Population Integrated Public Use Micro-data Samples (IPUMS). 31 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe U.S. education surpassed Europe by high school movement High school movement was uniquely American U.S. became world leader in educational attainment Why was U.S. educational system so different from rest of the world? Unique virtues of the American system Econ 113 (UC Berkeley) Lecture 7 9/21/2010 32 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe U.S. surpasses leading European countries in enrollment Source: Easterlin (1981). Econ 113 (UC Berkeley) Lecture 7 9/21/2010 33 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe 268 U.S. Full-Time Sec. School Enroll. Rate, 15-19 yr. olds Goldin educational leadership continues into 20th century 100 Full-time general Full-time technical 80 United States 60 40 20 0 ITA PRT ESP GRC LUX BEL FRA ISL DNK FIN AUT NLD DEU CHE IRL GBR NOR SWE FIGURE 1A FULL-TIME SECONDARY-SCHOOL ENROLLMENT RATES, EUROPE AND THE UNITED STATES, C.1955. Source: Goldin (2001). 100 -19 yr. olds Full-time general Lecture 7 9/21/2010 34 / 40 Econ 113 (UC Berkeley) Full-time technical Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe Virtues of American education had emerged by Civil War 1. Public funding: property tax 2. Public provision: universal public schools, free to all 3. Separation of church and state: religious groups did not run schools 4. Decentralized system: thousands of fiscally-independent districts 5. Forgiveness of poor backgrounds: open to all (immigrants, poor) 6. Gender neutrality: girls attended coeducational schools Econ 113 (UC Berkeley) Lecture 7 9/21/2010 35 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe Why did U.S. develop these virtues? Many developed in response to U.S. constitution and geographical constraints Republic vision of open and common system Goal: educated society, maintain equality Sought for informed citizens who could vote and serve in office Immediately seen as a means of acquiring skills for work and life Econ 113 (UC Berkeley) Lecture 7 9/21/2010 36 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe How European schools differed from those in the U.S. 1. Centralized: greater involvement of national government 2. Elite: based on exams, rather than being open to all 3. Standards: students tracked at a young age and can fail out of track U.S. has few standards, children can repeat grades 4. College prep: High schools designed to prepare for college Some pursued technical/apprentice positions instead of college In U.S., high school is recognized as terminal academic degree Econ 113 (UC Berkeley) Lecture 7 9/21/2010 37 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe From Virtues to Vices... Could the virtues of American schools also be vices that limit the system? Inequality: school quality and policies differ across school districts Geographic sorting: migrate if household can afford property tax Segregation: between white and black schools in South No academic standards: absent because of decentralization Contemporary education policy responding to these vices Econ 113 (UC Berkeley) Lecture 7 9/21/2010 38 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe U.S. schools are becoming more centralized 94 S.E. Black and K.L. Sokoloff Figure 6. Percentage distribution of revenue receipts for education. Source: NCES (2001). the National Education Association (NEA) to begin collective bargaining on behalf of teachers. (UC Berkeley)the practice spread quickly,7 with 93 percent of school districts Econ 113 Although Lecture 9/21/2010 Source: Black and Sokoloff (2006). 39 / 40 Growth Returns to Education U.S. Enrollment Public Education U.S. vs. Europe Conclusions 1. Countries with high enrollment rates have grown faster than those without 2. Enrollment soared as the returns to schooling increased and "costs" fell 3. High school movement diffused in U.S. in response to industry demand Political support greatest in Midwest, more homogenous 4. U.S. has been the world leader in educational advances Led in high school movement, then with post-secondary Econ 113 (UC Berkeley) Lecture 7 9/21/2010 40 / 40 ...
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