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

While substantial recent attention has been paid to understanding the determinants of educational outcomes, little is known about the causal impact of the most fundamental input in the education production function-students ’ study effort. In this paper, we examine the causal effect of studying on grade performance by taking advantage of unique new data that have been collected specifically for this purpose. Important for understanding the potential impact of a wide array of education policies, the results suggest that human capital accumulation is far from predetermined at the time of college entrance.

This paper studies the determinants of college attendance in Mexico. I use subjective quantitative expectations of future earnings to analyze both the causes and the implications of the steep income gradient in higher-education enrollment. In particular, I examine whether data on individuals ’ expected returns to college as well as on their perceived earnings risk can improve our understanding of heterogeneity in college attendance choices. I find that while expected returns and perceived risk from human capital investment are important determinants, lower returns or higher risk are not sufficient, alone, to explain the poor’s low attendance rates. I also find that poor individuals require significantly higher expected returns to be induced to attend college, implying that they face significantly higher costs than individuals with wealthy parents. I then test predictions of a simple model of college attendance choice in the presence of credit constraints, using parental income and wealth as a proxy for the household’s (unobserved) interest rate. I find that poor individuals with high expected returns are particularly responsive to changes in direct costs such as tuition, which is consistent with credit constraints playing an important role. To evaluate potential welfare implications of introducing a means-tested student loan program, I apply the Local Instrumental Variables approach of Heckman and Vytlacil (2005) to my model of college attendance choice. I find that a sizeable

The increase in female employment and participation rates is one of the most dramatic economic changes to have taken place during the last century. However, while the employment rate of married women more than doubled during the last fifty years, that of unmarried women remained almost constant. In order to empirically analyze these trends we divide the paper into two parts: In the first, we empirically estimate a traditional female dynamic labor supply model using an extended version of Eckstein and Wolpin (1989) in order to compare the various explanations in the literature for the observed trends. The main finding is that the rise in education levels accounts for about one-third of the increase in female employment while about 40 percent remains unexplained by observed household characteristics. We show that this unexplained portion can be empirically attributed to changes in preferences or the costs of childrearing and household maintenance. In the second part, we formulate and estimate a new framework for the couple intra-family game that is then used to analyze the household dynamic labor supply. We find that female labor supply may have increased significantly due to a change in the form of the household game.

In this paper we analyze the link between people’s “subjective ” expectations of returns to schooling and their decision to invest into schooling. We use data from a household survey on Mexican junior and senior high school graduates that elicits their own and their parents ’ beliefs about future earnings for different scenarios of highest schooling degree. These data allow us to derive measures of expected idiosyncratic returns to schooling as well as measures of individual risk perceptions of earnings and unemployment risk. Therefore we can analyze for two important school attendance decisions, high school and college, whether parents ’ or adolescents ’ expectations matter and whether expected returns or risk perceptions are important for these two decisions. We find that both adolescents ’ and parents ’ expectations matter in terms of the high school attendance decision, while for the college attendance decision the adolescents ’ expectations appear to be the relevant ones. These results suggest that adolescents play an important role in the intra-family decision process about human capital investments. While often neglected in the literature, risk perceptions are important predictors for high school attendance decisions. College attendance decisions on the other hand depend on expected returns to college. Making use of our data on subjective expectations, we provide evidence on the existence of credit constraints based on the argument that credit constraints would break the link between expectations and schooling decisions. Our results point towards an important role of credit constraints in college attendance decisions and thus provide one explanation for the large inequalities that can be found in particular in higher education in Mexico.

Women born in 1935 went to college significantly less than their male counterparts and married women’s labor force participation (LFP) averaged 40 % between the ages of thirty and forty. The cohort born twenty years later behaved very differently. The education gender gap was eliminated and married women’s LFP averaged 70 % over the same ages. In order to evaluate the quantitative contributions of the many significant changes in the economic environment, family structure, and social norms that occurred over this period, this paper develops a dynamic life-cycle model calibrated to data relevant to the 1935 cohort. We find that the higher probability of divorce and the changes in wage structure faced by the 1955 cohort are each able to explain, in isolation, a large proportion (about 60%) of the observed changes in female LFP. After combining all economic and family structure changes, we find that a simple change in preferences towards work can account for the remaining change in LFP. To eliminate the education gender gap requires, on the other hand, for the psychic cost of obtaining higher education to change asymmetrically for women versus men.

A stepping stone arises in risky environments with learning and transferable human capital. An example is the role played by academic two-year colleges in postsecondary education: Students, as they learn about the uncertain educational outcomes, can drop out or transfer up to harder and more rewarding schools, carrying a fraction of the accumulated human capital. A theory of education is built and contrasted empirically to find that i) option value explains a large part of returns to enrollment, ii) enrollment in academic two-year colleges is driven by the option to transfer up, and iii) the value of the stepping stone is small. JEL classification: D83, I21, J24.

An important number of high-school graduates start their post-secondary educational careers at academic 2-year colleges even though returns to graduation are negligible. However, the returns to transferring to 4-year colleges are large: academic 2-year colleges act as a stepping stone in which agents learn about themselves in a cheaper and less demanding environment than 4-year colleges. This paper presents a model of educational choice that incorporates academic 2-year colleges together with 4-year colleges and work. Agents are initially uncertain about their innate ability to accumulate human capital. Pessimistic agents join the workforce, optimistic agents enroll in 4-year colleges and those in the middle enroll in academic 2-year colleges. Exams govern the accumulation of credits and provide information that update beliefs, inducing dropouts and transfers. The model is consistent with facts that are documented for two different data sets: (1) among those initially enrolled in academic 2-year colleges, more able agents are less likely to graduate, more likely to transfer, and less likely to dropout; (2) among those initially enrolled in 4-year colleges, more able agents are more likely to graduate and less likely to dropout or transfer; (3) there is a higher concentration of high ability students among transferees. A decomposition of returns shows that the dropout and transfer options account for 90%

Common wisdom states that teenage childbearing reduces schooling, labour market experience and adult wages. However, the decisions to be a teenage mother, to quit school, and be less attached to the labour market might all stem from some personal or family characteristics. Using the National Child Development Study (NCDS), we find that in Britain teenage childbearing decreases the probability of post-16 schooling by 12 % to 24%. Employment experience is reduced by up to three years, and the adult pay differential ranges from 5 % to 22%. The negative impact of teen motherhood on various adult outcomes is not due to some pre-motherhood characteristics; hence policies aiming to encourage return to school and participation in the labour market may be an efficient way to reduce the long-term consequences of teenage pregnancy.

It is a widely held view that imperfect capital markets mean that individuals from poor backgrounds cannot borrow in order to finance educational investments. This view pervades policy formation, and is reflected in the fact that post-compulsory education processes in all countries involve considerable government intervention and large public subsidies. The evidence that credit constraints limit human capital investments is controversial. It is largely indirect or inferential, based, for example, on observed correlations between family income and the pursuit of post-secondary education. Other researchers have challenged the conclusions of such studies on several grounds. A balanced view may be that the importance of credit constraints to training and education choices is not yet resolved. This paper uses unique data to take a new approach to this question. Specifically, the 1995 Canadian Out of Employment Panel (COEP) allows us to explore the financial resources and skill formation choices of a large number of recent job losers. This approach has three advantages. First, it is a fairly direct investigation of the role of credit constraints. We have good measures of the financial resources of our subjects, in particular a measure of liquid assets or