Lecture8 - Rise of Legislation Effects of Laws Instrumental...

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Unformatted text preview: Rise of Legislation Effects of Laws Instrumental Variables Returns to Schooling Returns to Education and Compulsory Schooling Laws American Economic History University of California, Berkeley Department of Economics September 23, 2010 Econ 113 (UC Berkeley) Lecture 8 9/23/2010 0 / 35 Rise of Legislation Effects of Laws Instrumental Variables Returns to Schooling Today's Agenda: Child Labor and Returns to Education U.S. invested substantially in its public schools More schools per capita, and earlier expansion of high schools High levels of enrollment, increasing substantially early 20th century What role did the state play in the rise of public school enrollment? How important were compulsory schooling and child labor laws? Why were these laws passed? How did these laws affect the returns to education? Why are so many economists interested in these laws? Econ 113 (UC Berkeley) Lecture 8 9/23/2010 1 / 35 Rise of Legislation Effects of Laws Instrumental Variables Returns to Schooling Child labor rampant in U.S. following industrialization Econ 113 (UC Berkeley) Lecture 8 9/23/2010 2 / 35 Rise of Legislation Effects of Laws Instrumental Variables Returns to Schooling Rise and fall of child labor in the U.S. Children typically worked out of economic necessity Child labor grew in importance as manufacturing and agriculture did Children were source of cheap labor and were considered less rebellious Fall of child labor: declined during late 19th and early 20th centuries New technologies and immigrants supplanted demand for child labor From 1880 to 1930, child labor rate fell by over 75% By late 1800s, child laborers were 7% of working, urban population Econ 113 (UC Berkeley) Lecture 8 9/23/2010 3 / 35 Rise of Legislation Effects of Laws Instrumental Variables Returns to Schooling What did child labor laws regulate? Child labor laws: created rules and minimum ages for employing children State level laws, unconstitutional as federal issue (although attempted) Goal: to protect children from more dangerous lines of work Included industries of manual labor such as mining Also included inappropriate lines of work such as serving liquor Employers were typically subject to a fine for violating the law Laws often not enforced in agriculture or working at home Econ 113 (UC Berkeley) Lecture 8 9/23/2010 4 / 35 Rise of Legislation Effects of Laws Instrumental Variables Returns to Schooling Chronology of child labor laws 1837: Massachusetts passed first law, aimed at educating children in factories Children under 15 had to attend 3 months of school that year to work Pre-1880 laws: penalties were weak and minimal law enforcement 1900: 44 states and territories had child labor laws of some type Only 24 states had minimum age limits for manufacturing, ages 10-14 1914: all states had a child labor law Previous decade saw most amount of new age minimums Most states finally enacted provisions for inspectors to enforce laws Econ 113 (UC Berkeley) Lecture 8 9/23/2010 5 / 35 Rise of Legislation Effects of Laws Instrumental Variables Returns to Schooling What did compulsory schooling laws regulate? Compulsory schooling laws: ages during which children had to be in school Set minimum age required for children to begin school Set maximum age for when children could leave school Children could be exempt for reaching a certain grade Grade was high, so they could not be held back much for exemption Truancy officer would subject families under violating to fee Goal: to ensure that children were not loitering, in school, or working Established independently of child labor laws Econ 113 (UC Berkeley) Lecture 8 9/23/2010 6 / 35 Rise of Legislation Effects of Laws Instrumental Variables Returns to Schooling Chronology of compulsory schooling laws 1852: Massachusetts passed 1st law for 8-14 year olds for 12 weeks 1890: 27 states had a law None of these states were in the South Some laws were quite lenient and required only a few months of school 1918: all states had passed a law Expanded during high school movement to include teenage years Econ 113 (UC Berkeley) Lecture 8 9/23/2010 7 / 35 Rise of Legislation Effects of Laws Instrumental Variables Returns to Schooling Rise of compulsory schooling laws, lagged in South Figure 2: Adoption of Compulsory Attendance Laws, 1840-1920 Notes: See Appendix for sources on compulsory attendance laws Source: Clay, Lingwall, and Stephens (2010). Econ 113 (UC Berkeley) Lecture 8 9/23/2010 8 / 35 Rise of Legislation Effects of Laws Instrumental Variables Returns to Schooling Work Permit could exempt children to work Work Permit: children could leave school to work Required a minimum level of education Almost always lower than what would have been obtained by laws Combining child labor and compulsory schooling Timing: early 1910s, became more stringent over 1920s and 1930s Econ 113 (UC Berkeley) Lecture 8 9/23/2010 9 / 35 Rise of Legislation Effects of Laws Instrumental Variables Returns to Schooling Average THE JOURNAL OF LAWand exit ages: 1915-1939 school entrance AND ECONOMICS 16.5 16 15.5 'kL CompulsoryAttendanceand Child LaborLaws: National Averages among States with Laws -4-14age work permit 15 13.5 15 17 19 21 23 25 27 29 31 33 35 37 39 Age at Which Child Must Enter School: NationalAverage among States with CALs 7.8 7.6 7.4 -- entrance age 7.2 7- 15 17 19 21 23 25 27 29 31 33 35 37 39 Source: Lleras-Muney (2002). EducationRequirements: NationalAverages Econ 113 (UC Berkeley) (States with No Law Coded as 0) Lecture 8 9/23/2010 10 / 35 Rise of Legislation Effects of Laws Instrumental Variables Returns to Schooling Continuation schools facilitated part-time education Continuation schools: part-time schools For those who received exemption but within compulsory schooling age Ran during workday (not night or Sundays), often 4-8 hours per week More likely to effect men because they had more working opportunities Timing: mostly implemented during 1920s Econ 113 (UC Berkeley) Lecture 8 9/23/2010 11 / 35 Nu 6 Rise of Legislation 0 Effects of Laws no requirement Instrumental Variables Returns to Schooling Average school entrance and exit ages: 1915-1939 6. and 7. Continuation School Mandatory or Permissible 1905 1910 1915 1920 1925 1930 1935 1940 Number of States with Continuation School Law 30 25 Continuation School Mandatory or Permissible Continuation School Mandatory 20 15 10 5 0 1905 1910 1915 1920 1925 1930 1935 1940 Source: Goldin and Katz (2008). Sources: 113 (UC Berkeley) Econ See Data Appendix. Lecture 8 9/23/2010 12 / 35 Rise of Legislation Effects of Laws Instrumental Variables Returns to Schooling Did the laws decrease child labor and improve attendance? Econ 113 (UC Berkeley) Lecture 8 9/23/2010 13 / 35 Rise of Legislation Effects of Laws Instrumental Variables Returns to Schooling Effect of Child Labor Laws Moehling (1999): did child labor laws reduce manufacturing employment? Different laws were passed in different states and at different times Compares children ages 13 and 14, in states with different minimum ages Uses 1880, 1900, and 1910 census during which laws changed the most Example: Pennsylvania had a minimum age of 13 in 1900, 14 in 1910 New York had a minimum age of 14 in both years Relative to NY, did fewer 13 year olds than 14 year olds work in Penn in 1910 than in 1900? Econ 113 (UC Berkeley) Lecture 8 9/23/2010 14 / 35 Rise of Legislation Effects of Laws Instrumental Variables Returns to Schooling Did the law influence the economy, or the economy the law? Finding: no statistically significant, non-zero effect of laws Laws did not cause economic change but were a response Received more political support as child labor declined "The forces credited for the decline of child labor in the U.S. are changes in technology, increases in the supply of unskilled workers due to overseas immigration, and rising real wages. The enactment of state child labor laws, rather than being viewed as an initiator of change, has been viewed as a consequence of change: as the demand for child labor fell, so did opposition to child labor legislation, allowing activists to push their reform legislation through state legislatures." -Carolyn Moehling, "State Child Labor Laws" (1999) Econ 113 (UC Berkeley) Lecture 8 9/23/2010 15 / 35 Rise of Legislation Effects of Laws Instrumental Variables Returns to Schooling 416 THE schooling laws ECONOMICS Did compulsoryJOURNAL OF LAW AND improve attendance? TABLE 4 EFFECT OF LAWS ON EDUCATION BY GENDER AND RACE White Males Childlaw ContinuationSchool (= 1) .046* (.014) .085+ (.050) White Females .062* (.011) .004 (.043) Black Males .014 (.028) .039 (.158) Black Females -.023 (.022) .104 (.119) education. errors variable: Childlaw= WorkPermitAge - Entrance Standard NOTE.-Dependent Age. are (in parentheses) robust.All coefficientsderivedfromregressionsthatuse the samecontrolsas in Table 3. Calculations madeusing 1960 censusdataand datadescribedin SectionIII. were at + Significant the 10%level. * Significantat the 5% level. Source: Lleras-Muney (2002). Econ 113 (UC Berkeley) Lecture 8 9/23/2010 16 / 35 Rise of Legislation Effects of Laws Instrumental Variables Returns to Schooling Compulsory schooling affected older children Source: Clay, Lingwall, and Stephens (2010). Econ 113 (UC Berkeley) Lecture 8 9/23/2010 17 / 35 Rise of Legislation Effects of Laws Instrumental Variables Returns to Schooling Compulsory schooling laws only affected high school Table 4: The Effect of Compulsory Attendance Laws on Schooling Achievement (in percentage terms) drop out high school some college college+ (1) (2) (3) (4) WHITES Compulsory Attendance = 9 -3.25 3.27 -0.04 0.03 (0.34) (0.37) (0.17) (0.20) Compulsory Attendance = 10 -3.31 4.01 -0.30 -0.39 (0.45) (0.51) (0.30) (0.33) Compulsory Attendance 11 -5.51 5.82 -0.68 0.36 (0.47) (0.52) (0.26) (0.32) F-test [p-value] 47.91 45.47 3.05 1.67 [0.000] [0.000] [0.027] [0.171] R-squared 0.12 0.02 0.04 0.05 BLACKS Compulsory Attendance = 9 Compulsory Attendance = 10 Compulsory Attendance 11 F-test [p-value] R-squared -2.36 (0.46) -1.76 (0.65) -2.96 (0.69) 10.09 [0.000] 0.19 3.09 (0.41) 4.06 (0.64) 5.02 (0.62) 27.13 [0.000] 0.07 -0.69 (0.23) -1.82 (0.39) -1.89 (0.34) 12.76 [0.000] 0.06 -0.03 (0.16) -0.47 (0.23) 0.16 (0.25) 1.85 [0.136] 0.02 Source: Lochnercorrected for State (2004).Year of Birth clustering are in parentheses. Notes: Standard errors and Moretti of Birth The dependent variable in column 1 is a dummy equal to 1 if the respondent is a high school Econ 113 (UC Berkeley) Lecture 8 drop out. Coefficient estimates multiplied by 100. The dependent variables in columns 2-4 are 9/23/2010 18 / 35 Rise of Legislation Effects of Laws Instrumental Variables Returns to Schooling Why were the effects so small? Compulsory schooling increased enrollment by 2-5% Average person attended an additional week or so of school Or, 2-5% of population attended one more year of school Effect looks small, but enrollment had already been 60-80% U.S. already had a good school system in place Compulsory schooling laws had greater impact in most other countries: "Compulsory schooling laws were expanded and increasingly enforced in many countries in the mid-twentieth century and were apparently effective in increasing enrollment rates. Their effectiveness was greatest when they were accompanied by large increases in educational access and spending, often when the laws bound the state to provide more educational resources." -Claudia Goldin and Lawrence Katz, "Mass Secondary Schooling" (2008) Econ 113 (UC Berkeley) Lecture 8 9/23/2010 19 / 35 Rise of Legislation Effects of Laws Instrumental Variables Returns to Schooling Child labor in developing countries Child labor remains prevalent in many developing countries Children typically work in response to parent poverty Typical policies could reduce welfare by not assisting poorer families Child labor laws economic incentives had driven child labor Banning importing products that are the result of child labor What lessons can be learned from the US? Address demand for child labor Technological adoption Econ 113 (UC Berkeley) Lecture 8 9/23/2010 20 / 35 Rise of Legislation Effects of Laws Instrumental Variables Returns to Schooling Returns to education regression Returns to education: y = 0 + 1 s + y is earnings s is years of schooling 0 and 1 are parameters to estimate is an error term to make this equation hold 1 : returns to education How did compulsory schooling laws affect returns? Econ 113 (UC Berkeley) Lecture 8 9/23/2010 21 / 35 Rise of Legislation Effects of Laws Instrumental Variables Returns to Schooling Returns to education regression has endogeneity problem Why do some people go to school longer? Do the reasons also affect wages? Ability Health Motivation Parental background ...and many, many more Endogeneity: factors affecting schooling ("X") also affect earnings ("Y") Cannot control for all of these factors 1 is not robust nor is the t-statistic and are "biased" Econ 113 (UC Berkeley) Lecture 8 9/23/2010 22 / 35 Rise of Legislation Effects of Laws Instrumental Variables Returns to Schooling Solution: Natural Experiment for Schooling Endogenous if students choose how much schooling to receive Is there an exogenous reason that caused amount of schooling to differ? This exogenous reason is the natural experiment Compulsory schooling laws...could be a candidate Varied across states, years, and ages (a lot of variation) Consider a student who would have preferred to drop out at age 10 Law caused this student to attend more school than would have chosen Econ 113 (UC Berkeley) Lecture 8 9/23/2010 23 / 35 Rise of Legislation Effects of Laws Instrumental Variables Returns to Schooling Example of Laws as Natural Experiment South Carolina: implemented compulsory schooling law in 1915 Students had to begin school by age 8 and remain until 16 Consider a child born in 1900 and another born in 1910 Suppose children prefer to attend school for 0, 4, 8, or 10 years A 1910 child who would have chosen 4 can no longer make that choice Some children unaffected because they would always choose 8+ years Some children attend more schooling because of law, not ability Control and treatment groups based on who law affected Econ 113 (UC Berkeley) Lecture 8 9/23/2010 24 / 35 Rise of Legislation Effects of Laws Instrumental Variables Returns to Schooling ...and the comparison groups continue North Carolina: in 1913, ages were 8 to 12, increasing to 14 in 1918 comparison within cohort (e.g., 12 and 13 year olds in 1913) comparisons by cohort (e.g., 13 year olds in 1917 and 1919) ...and these laws were different than in South Carolina Comparisons across state (NC v.s. SC), cohorts (when laws are passed), and amount of schooling (ages of the laws) Ability less likely to differ across these groups Econ 113 (UC Berkeley) Lecture 8 9/23/2010 25 / 35 Rise of Legislation Effects of Laws Instrumental Variables Returns to Schooling Two-step regression to purge endogeneity 1. Usual regression: schooling on compulsory schooling laws 1a. Collect the fitted values for schooling Using regressors (the laws), how much schooling do the laws predict Need not be the same as the schooling actually received 2. 2nd Regression: Earnings on the fitted values These fitted values have nothing to do with ability, motivation.... Two-step approach known as Two Stage Least Squares Econ 113 (UC Berkeley) Lecture 8 9/23/2010 26 / 35 Rise of Legislation Effects of Laws Instrumental Variables Returns to Schooling Are the laws be actually exogenous? Procedure requires that the laws not be endogenous Laws cannot be implemented in relation to earnings Laws can only improve earnings because they affect schooling Difficult to guarantee for earnings (richer states implement laws) What if we are interested in the returns to health? Not likely that healthier states passed laws Economists have gone one-step further and use quarter of birth Quarter of birth is exogenous to laws, schooling, and earnings Consider January-September term and maximum age under law is 16 Someone who turned 17 in December need not start the next year Someone who turns 17 in September will finish the year Econ 113 (UC Berkeley) Lecture 8 9/23/2010 27 / 35 Rise of Legislation Effects of Laws Instrumental Variables Returns to Schooling Instrumental variables and compulsory schooling Instrumental variable: the exogenous variable in the first regression Education as outcome: quarter of birth as instrument for education Law related to education, quarter of birth is not Differences in education due to quarter of birth due to the laws Ability and motivation should not vary by quarter of birth Health, crime, voting as outcome: compulsory schooling instrument These variables were found to be unrelated to why laws were passed Econ 113 (UC Berkeley) Lecture 8 9/23/2010 28 / 35 Rise of Legislation Effects of Laws Instrumental Variables Returns to Schooling Why many economists are interested in these laws Long-standing question in economics: how important is education? Individual: will attending more school cause higher earnings? Compulsory schooling laws as instrument for years of schooling Estimates do not suffer from omitted variables bias Econ 113 (UC Berkeley) Lecture 8 9/23/2010 29 / 35 Rise of Legislation Effects of Laws Instrumental Variables Returns to Schooling Public policy: social returns to education Government: will spending money on school lead to better citizenry? Individuals will be better prepared for labor force (R&D) Education might also have positive externalities to factor in Educated citizenry might be more likely to vote (and intelligently) Educated citizenry might be less likely to engage in crime Cost-benefit analysis must factor in these potential benefits Econ 113 (UC Berkeley) Lecture 8 9/23/2010 30 / 35 Rise of Legislation Effects of Laws Instrumental Variables Returns to Schooling Compulsory schooling laws improved earnings Source: Angrist and Krueger (1991). Returns increases when using laws as an instrument. Econ 113 (UC Berkeley) Lecture 8 9/23/2010 31 / 35 Rise of Legislation Effects of Laws Instrumental Variables Returns to Schooling Compulsory schooling laws improved later-life health Source: Lleras-Muney (2005). Econ 113 (UC Berkeley) Lecture 8 9/23/2010 32 / 35 Rise of Legislation Effects of Laws Instrumental Variables Returns to Schooling Compulsory schooling laws reduced criminal activity Table 8: The Effect of Years of Schooling on Incarceration (in percentage terms) Robustness Checks WHITES BLACKS OLS 2SLS OLS 2SLS (1) (3) (3) (4) (A) Base Case -0.10 -0.14 -0.37 -0.41 (0.00) (0.06) (0.01) (0.19) First Stage F-Test (d.o.f =3) 36.2 41.5 Source: Lochner and Moretti (2004). Econ 113 (UC Berkeley) (B) Region of Birth Cohort Trend -0.10 -0.19 Lecture 8 -0.37 -0.73 9/23/2010 33 / 35 Rise of Legislation Effects of Laws Instrumental Variables Returns to Schooling Compulsory schooling laws improved civic participation Source: Milligan, Moretti, and Oreopoulous (2005). Econ 113 (UC Berkeley) Lecture 8 9/23/2010 34 / 35 Rise of Legislation Effects of Laws Instrumental Variables Returns to Schooling Conclusion Turn of 20th century: rise of child labor and compulsory schooling laws Laws had minimal short-term impact Child labor participation had already declined Enrollment was already significant Impact would have been greater if they were implemented earlier Less political support while child labor was prevalent Long-term impact of education under compulsory schooling laws Private returns improved: earnings and health Social returns improved: crime reduction and civic participation Econ 113 (UC Berkeley) Lecture 8 9/23/2010 35 / 35 ...
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