This paper examines the family income–college enrolment relationship and the evidence on credit constraints in post-secondary schooling. We distinguish short run liquidity constraints from the long term factors that promote cognitive and noncognitive ability. Long run factors crystallised in ability are the major determinants of the family income- schooling relationship, although there is some evidence that up to 8 % of the total US population is credit constrained in a short run sense. Evidence that IV estimates of the returns to schooling exceed OLS estimates is sometimes claimed to support the existence of substantial credit constraints. This argument is critically examined. This paper interprets the evidence on the relationship between family income and college attendance. Fig. 1 displays aggregate time series college participation rates for 18–24 year old American males classified by their parental income. Parental income is measured in the child’s late adolescent years. There are substantial differences in college participation rates across family income classes in each year. This pattern is found in many other countries; see the essays in Blossfeld and Shavit (1993). In the late 1970s or early 1980s, college participation rates start to

This paper develops new economic models to synthesize and interpret the empirical literature on human skill formation. It presents simple formal economic models of child development that capture the essence of recent findings from the empirical literature. The goal of this essay is to provide a theoretical framework for interpreting the evidence from a vast empirical literature, for guiding the next generation of empirical studies, and for formulating policy. Central to our analysis is the concept that childhood has more than one stage, and that policies need to be tailored to each one. We formalize the concepts of self productivity and complementarity of human capital investments and use them to explain the evidence on skill formation. Together, they explain why skill begets skill through a skill multiplier process. Skill formation is a lifecycle process. It starts in the womb and goes on throughout most of the adult life. Families play a

Abstract not found

R01-HD32058-03, and the American Bar Foundation. Carneiro was funded by Fundacao Ciencia e Tecnologia and Fundacao Calouste Gulbenkian. We have beneÞted from comments received

Abstract not found

The case for increasing higher education subsidies from their already high levels is repeatedly made by politicians and policy makers. What are the e#ects of further increasing subsidies on inequality, welfare, and e#ciency? In this paper, we develop a simple dynamic general equilibrium framework to answer these questions. Our model features heterogeneity in the income of parents and the academic ability of students. Liquidity constraints create persistence in educational attainment even when ability is independently distributed. Once we prove the existence and uniqueness of equilibrium, we add a government that is equipped with a simple tax and subsidy scheme and calibrate the model to the US economy to get a benchmark for our policy analysis. We focus on three types of policies that are usually proposed. The rst is equality of opportunity. The government can design a tax and subsidy scheme to achieve this, but only at the expense of a decrease in the e#ciency of utilization of education resources; the welfare gain is minimal. The second is an open door policy that aims to maximize the fraction of college-educated labor. This results in a big drop in the above-mentioned e#ciency with little or no welfare gain. The third is the provision of merit-based aid to the poor as opposed to purely need-based aid. This policy can increase education e#ciency with little decrease in welfare. Based on these experiments, we conclude that the case for further increases in higher education subsidies might have been overstated. # Caucutt: Department of Economics, University of Rochester, Rochester, NY 14627. e-mail: ecau@troi.cc.rochester.edu. Kumar: Finance and Business Economics, Marshall School of Business, HOH 701, University of Southern California, Los Angeles, CA 90089-1427. e-mai...

Causality is a very intuitive notion that is difficult to make precise without lapsing into tautology. Two ingredients are central to any definition: (1) a set of possible outcomes (counterfactuals) generated by a function of a set of ‘‘factors’ ’ or ‘‘determinants’ ’ and (2) a manipulation where one (or more) of the ‘‘factors’ ’ or ‘‘determinants’’ is changed. An effect is realized as a change in the argument of a stable function that produces the same change in the outcome for a class of interventions that change the ‘‘factors’ ’ by the same amount. The outcomes are compared at different levels of the factors or generating variables. Holding all factors save one at a constant level, the change in the outcome associated with manipulation of the varied factor is called a causal effect of the manipulated factor. This definition, or some version of it, goes back to Mill (1848) and Marshall (1890). Haavelmo’s (1943) made it more precise within the context of linear equations models. The phrase ‘ceteris paribus’ (everything else held constant) is a mainstay of economic analysis

This paper examines the impacts of work experience acquired while youth were in high school (and college) on young men's wage rates during the 1980s and 1990s. Previous studies have found evidence of sizeable and persistent rates of return to working while enrolled in school, especially high school, on subsequent wage growth; and that the return to such inschool work experience does not decline in age. Such findings may represent causal effects of having acquired work experience while still enrolled in school, but they may also be the result of failure to fully account for individual differences in young adults' capacities to acquire such skills and be productive in the work force later in life. We re-examine the robustness of previous attempts to control for unobserved heterogeneity and selectivity. We explore more general methods for dealing with dynamic forms of selection by explicitly modeling the educational and work choices of young men from age 13 through their late twenties. Using data on young men from the 1979 National Longitudinal Survey of Youth, (NLSY79), we find that the estimated returns to working while in high school or college are dramatically diminished in magnitude and statistical significance when one uses these dynamic selection methods, and the return to in-school work experience dropped over time. As such, our results indicate a decided lack of robustness to the inference about the effects of working while in school that has been drawn from previous work.

The decision to take more education is complex, and is influenced by individual ability, financial constraints, family background, preferences, etc. Such factors, normally unobserved by the researcher, introduce endogeneity and heterogeneity problems into estimating the returns to education. In this paper, these problems are addressed by estimating a comparative advantage model for schooling, in which the returns to education vary at different levels of education. The model requires that instruments must be specified at each level of education, and we suggest that different school reforms in Norway can serve as suitable instruments. In particular, we exploit the staged implementation of a major reform in the comprehensive school system in the 1960s. We find that the returns to education are strongly nonlinear. In particular, we find that the returns to upper secondary school and shorter programs at regional colleges, together with master’s programs at universities, have high returns as measured by wages. Also, we find that the average treatment effect is surprisingly high for medium-length educations (up

In a sample selection or treatment effects model, common unobservables may affect both the outcome and the probability of selection in unknown ways. This paper shows that the distribution function of potential outcomes, conditional on covariates, can be identifiedgivenanobservedvariableVthat affects the treatment or selection probability in certain ways and is conditionally independent of the potential outcome equation error terms. Selection model estimators based on this identification are provided, which take the form of either simple weighted averages or GMM or two stage least squares. These estimators permit endogenous and mismeasured regressors. Empirical applications are provided to estimation of a firm investment model and a returns to schooling wage model. Portions of this paper were previously circulated under other titles including, ”Two Stage Least Squares Estimation