Nova workboard

a blog from young economists at Nova SBE


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The role of parents on education

The equality of opportunities is a dominant matter of societies. It is believed that one way to decrease inequality is through education. Thus, for this purpose, the education system has become an important foundation for the future of the citizens and economic opportunities. Therefore, because children are the key to a brighter future, it is society’s duty to provide them with complete education and teach them how to be productive.

The education that a child receives in their first years is crucial and has a huge impact in the rest of their lives. However, this kind of investment in children’s education requires two fundamental resources from parents, which are basically time and money. Besides these relevant factors, home background is also essential because parents have the capacity to induce their children to care about education and, thus, make them be interested in learning through so they can be more qualified and prepared for the different challenges they can face.

On the other hand, the education received by the parents can also influence the education of their children. In other words, parents with a high educational level know how to help their children to surpass the different obstacles that may appear because they are qualified to do so. Hence, this process of transferring knowledge may be essential to make children even more qualified than their parents.

Although it’s important for parents to have a high literacy level, one must verify that most of these qualified parents spend most of their time working and don’t really have the time needed to support their children as they should. Moreover, even if the parents aren’t qualified enough, the time spent with their children in activities such as checking homework, attending school events and letting kids know school is important, is considered the basis of successful performances by children. According to a study published by researchers at North Carolina State University, Brigham Young University and the University of California-Irvine family involvement has a strong positive effect on student’s education progress. Additionally, other study was conducted by researchers at the University of Leicester and University of Leeds, which concludes that parents’ efforts towards their child’s educational performance are fundamental since the role they play is more powerful and significant than that of the school or child. As a result, children of parents who put effort and dedicate time to children education have better achievements and a better performance on education.

So one can conclude that improving parents’ commitment on child education might be a competent policy in strengthening educational attainment, since it is more effective than changing parents social background and it will eventually lead to better economic results in the future. For example schools can volunteer to help develop parents information on student learning and make it better.

Maria Silva, 702

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The Affluence Test

A recent study by the National Center for Fair & Open Testing (USA) shows a clear correlation between students “aptitudes” – measured by the score in the SAT test – and their family’s income level. Indeed, the research denotes a clear increase in the test scores, for every topic being tested, as we move along the income distribution. Hence, a wealthier student, on average, does better than a poorer student and, therefore, that A on SAT not only stands for Aptitude but it may also stand for Affluence. (i)
Initially, the SAT test was called Scholastic Aptitude Test, but the name created a lot of controversy – scholastic means academic and aptitude stands for natural skills, and hence, some argued that the test “aimed” to check how prepared you were to succeed in the school environment, given your inherent skills only. This point of view completely neglects other variables as determinants of academic success and, after several changes throughout the years, the test is nowadays called SAT Reasoning Test (2004), where SAT stands for nothing at all (to avoid controversies), and the subjects tested are reading, mathematics, and writing. (ii) The test score is of particular relevance in the US, not only because college institutions widely use them in its admissions, but also because some employers still ask for the test results when one applies for a job.
Is there really a causal relation between the scores and parent’s income? To answer this question we would need the counterfactual event: what would the wealthier (poorer) kids grades be if they were less (more) wealthy?
On one hand, it is a fact that home environment is of great importance when we talk about academic success: children born into wealthier families (which are expected to be also more educated) are more likely to be exposed to a wider variety of realities and to receive moral support from their parents during their childhood. Thus, these students can focus right from infanthood on their studies and future, without distractions. Students from a poor background, on the other hand, have several distractions in the form of financial and social problems, and often do not have parents who can actively guide them and, as a consequence, may be less motivated to study. In fact, a very recent study shows that family is of particular importance when predicting education performance and future income. (iii) Furthermore, there are some studies which show that natural ability are correlated across generations, i.e., children whose parents are wealthier (and supposedly more educated and capable) are smarter than poorer background children. (iv)
Secondly, wealthier parents are able to pay for better schools, i.e., schools that provide better quality education to its students, and/or for additional tutoring after the school period. In fact, one of the reasons pointed out by the researchers to justify the gap is the ease by wealthier parents to pay for SAT preparation courses, although some research suggests that test preparation only rises math scores by 14-15 points and reading scores by 6-8 points, while the score gap is much bigger than this. Thus, although this is not the only reason behind the disparity, liquidity constraints are indeed a factor that may lead low educated parents (which are also expected to be more resource constrained) to underinvest in education.
Indeed, given these 2 reasons above, it is very likely that parent’s income has a causal impact on the children attainment in the SAT test. Bearing in mind the importance of the test results in the US, if there is indeed causality between income and SAT score, one concerning consequence of this asymmetric performance is that children from wealthier families are more likely to be admitted in college institutions, get a job and have higher income. All in all, there is a low opportunity cycle for those who are born into less wealthy families. In fact, some academic intellectuals, like Nicholas Lemann, argue that if the system continues to use the SAT score as an admission condition, low score students (which are, on average, more likely to come from poorer families) will perpetually be kept away from prominent careers and thus, incapable of leaving the poverty cycle. (v) Furthermore, creativity is not tested by the SAT and “numerical measurement isn’t the answer to everything in life,” Lemann says. By using the SAT score, the system is in a certain manner, supressing the creative/artistic thinking and, in fact, several art schools have already dropped the exam from its admissions. (vi)
All in all, family’s income is indeed a factor that seems to pre-determine student’s attainment in the SAT tests, leading to a concerning problem of a poverty cycle. Although the weight given to the results in these tests seems to be decreasing over time and despite the evidence that these tests don’t measure the whole range of a person’s ability, they are still very widely used. Is it prudent to use an Aptitude Test score as a determinant to a person’s whole future career (and generations)?

(i) http://blogs.wsj.com/economics/2014/10/07/sat-scores-and-income-inequality-how-wealthier-kids-rank-higher/
(ii) http://en.wikipedia.org/wiki/SAT
(iii) http://ftp.iza.org/dp7682.pdf
What Predicts a Successful Life? A Life-Course Model of Well-Being
(iv) See: Genetics of brain function and cognition – Eco J. C. de Geus, Margaret J.Wright, Nicholas G. Martin, Dorret I. Boomsma
(v) http://content.time.com/time/magazine/article/0,9171,136829,00.html
(vi) http://www.washingtonpost.com/blogs/answer-sheet/wp/2012/11/28/colleges-that-dont-require-sat-or-act-new-survey/

David Dias Pissarra. 728


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Education and Economic Growth

There are two reasons why people can expect a relationship between Education and Economic Growth. Firstly, living standards have risen since the end of the 19th century. One factor can be Education (others can be technological improvement and innovations), as it was not observed at the same pace in the illiterate countries ; they started to merge into the economic world only approximately 200 years ago. People need to be educated if they want to function in an advanced society, benefit from scientific advance and contribute to it. Then, many econometric studies show that incomes depend on the level of education of a person. This last outcome leads to a question : if these more educated people can earn more, isn’t it supposed to be true for a nation (as it is a grouping of individuals) ? If money spent on education has some returns, it is possible to talk about investment on Human Capital and the process of education may be seen as an investment decision.

According to Mincer’s model (1974), individual earnings are a function of years of education (between others). This model implies that a change in a country’s average level of schooling must be a major determinant of income growth. Mincer showed that if the opportunity cost of students’time is the cost of going to school and if this additional time at school causes a proportional increase of incomes over lifetime, the log of earnings is linearly related to people’s years of schooling. The slope represents the rate of return to investment in schooling. However, the fact that at the individual level, investing on education increases earnings does not necessarily imply that the same would happen at the aggregate level – it could happen that you earn more when you are more educated than the average, but that if everyone becomes more educated, then earnings do not change. As Mincer’s equation applies at the individual level, we must be careful when trying to apply this at country level. It is true that at the World level, we can observe a postive relationship between level of income and income per capita of a country and the level of education of its population, but the causality is discussed.  Krueger and Lindhal (2001) state that when taking into account measurement error, they show that education and growth are positively correlated.

Psacharopoulos’ international survey (1992) indicated that the level of education has also some social returns. The social aspect must thus be taken into account as well. It can be either higher or lower than monetary return. It can be higher due to externalities like more informed political decisions or reduction in crime, and can be lower because education could only be a credential (as Machlup and Spence indicated in 1970 and 1973). Notice that this study do not measure externalities ; it measure private and social returns but the difference between the two regards only public expenditure.

However, both studies lead to one fact : rates of social returns get smaller with the « amount » of education. It means that primary school has a greater impact than tertiary education. This also significates that one extra year of education raises labour income in a greater proportion in developing countries than in advanced ones. In other words, returns to education decrease with levels of development. Education can also affect national income in ways that differ from wage rates – especially in developping countries where education is positively linked to children’s health or labour participation, for example.


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The shady sides of smaller class sizes

“Education is our passport to the future, for tomorrow belongs to the people who prepare for it today.” What the pugnacious Malcom X expressed in 1964, is nowadays – at least in its principles – a consensus view in the worlds of science, politics and business. However, while the great importance of education for the individual as well as for the overall societal development is broadly accepted, the (potential) influence of different education policies has to be scrutinized even more critically.

In the last decades, educational debates were often dominated by calls for class size regulation policies. Since smaller classes usually enable higher personal attention for students, such demands seem to be obvious. Despite the mentioned benefit, a holistic evaluation raises the question if class size reductions are really as worthwhile as widely believed? As Harris/Plank (2001) and Jepsen/Rivkin (2009) show based on the cases of class size reduction programs in the US states of Michigan and California, there might be a tradeoff between the average teacher quality and class size. On the one hand, class size reduction programs lead to the necessity of hiring a large number of teachers, even if this means bringing less qualified personal into the job, given the available application pool. On the other hand, such programs are very cost-intensive due to the requirement for additional teachers, classrooms and equipment. Together with the traditionally tight education budget, this leads to deficits with regard to sufficient teacher salaries as well as to the financing of teacher training.

In light of the opportunity costs principle and since the aspects mentioned above tend to affect the average teacher quality in a negative way, we somehow have to weigh the benefits of smaller classes against those of better teachers. Fortunately, Hattie (2009) with his unprecedented extensive empirical study is providing a terrific tool for doing this. By synthesizing more than 800 meta-analyses about the influences of a total number of 138 different programs, innovations and policies on the student achievement, he is able to determine an effect size for all of them. While a value of 0.21 indicates that the class size has only a small positive influence on student achievement, different teacher quality related issues like teacher clarity, teacher-student relationship or professional development have effect sizes above 0.60 and are among the most influential effects. Does this mean that we should not care about class size at all? As the small but still positive effect size shows, this is clearly not the case. Nevertheless, in consideration of (opportunity) costs focusing on measures to improve the average teacher quality might be more beneficial. Since such improvements cannot be achieved from one day to the next, these medium-term development programs should be supplemented by short-term measures like assigning disproportionally large classes to the best teachers (Hansen (2013)).

Tim Silberberger

References

Hansen, Michael (2013): Right-sizing the Classroom: Making the Most of Great Teachers; Thomas Fordham Institute.

Harris, Douglas and David N. Plank (2001): Does Class Size Reduction Come at the Expense of Teacher Quality?; Policy Report Number 4 (November 2001); The Education Policy Center at Michigan State University.

Hattie, John (2009): Visible learning. A synthesis of over 800 meta-analyses relating to achievement; London.

Jepsen, Christopher and Steven Rivkin (2009): Class Size Reduction and Student Achievement: The Potential Tradeoff between Teacher Quality and Class Size; Journal of Human Resources, 44:1 (2009) 223-250.


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EQUIS-accreditation

The Faculty of Business and Economics (FEB) of the Katholieke Universiteit Leuven (KUL) in Belgium has recently acquired the recognized EQUIS-accreditation for its 4 campuses (Leuven, Kortrijk, Antwerp and Brussels). This accreditation confirms that the FEB deserves a place in the top business school around the world. Although, the national accreditation by NVAO[1] already confirmed that the faculty is a pioneer in the Benelux, the EQUIS-accreditations supports its top positions in the rest of the world. This award postulates that the FEB is an international leader in research and education in economy and business.

The EQUIS-accreditations are assigned by the European Foundation for Management Development (EFMD). The foundation is a non-profit organization and its main goals are to promote, to improve and to internationalize management education worldwide in order to build a bridge between education and business. As to reach these goals, the EFMD allocates EQUIS-accreditations to a select group of business schools and faculties that meet high quality standards.

EQUIS tries to look for a balance between professional relevance and high academic quality. Therefore, a strong interaction with the business world and a strong research potential are both requirements to be fulfilled. Of particular importance for the EQUIS it the establishment of a learning environment that favors the development of managerial and entrepreneurial skills and in addition promotes a sense of global responsibility among the students. EQUIS also seeks for innovation in all aspects, including pedagogy and program design.

The allocation of this award is based on a long term and intensive evaluation process in which following aspects of the faculty are investigated: (1) quality of the education and students, (2) level and relevance of the research, (3) quality of strategy and board, (4) degree of internationalization, (5) financial situation and risk management, (6) orientation in the national and international business world and (7) attention to ethics and sustainability.

The advantages of the accreditations are: (1) international recognition for the faculty, as well as for the diploma of the students, (2) it provides a mechanism to compare the faculty and the students among the top, (3) it stimulates the FEB to continue on improving the quality and (4) the accreditation is a confirmation of a strong international reputation and the ability to achieve the high standards of the best business schools in the world.

With this accreditation, the faculty of Business and Economics joins the group of accredited schools like Amsterdam Business School, Copenhagen Business School, Nova school of Business and Economics, London Business School, etc. You can find a list of all accredited schools on the website of the EMFD.

My opinion as a student on this accreditation is that it can really be seen as a signal of the ability of the students. After graduating, having an accredited degree may generate a broader range of job opportunities, because employers are even more aware of the capabilities of the student. So, for the students, the accreditation implies some advantages associated with their degrees.

 

Birgit Derzelle

 

[1] Nederlands-Vlaamse Accreditatieorganisatie


Reducing Class Size: Why isn’t it working better?

When choosing a school for their children, caring parents often prioritize the ones that offer smaller classes. The ideal class size and its effect on learning outcomes have been widely discussed. Theoretical arguments in favour of going for smaller classes are numerous and gravitate towards the case for more personalized and valuable instruction. However, empirical evidence seems to be underwhelming.

Brühwiler and Blatchford found that smaller classes led to higher academic learning progresses, better knowledge of students, and better classroom processes, and that this was important independently from teacher quality. Similarly, other studies have found negative correlations between class size and student performance. However, these effects tend to be modest. As John Hattie put it in his Meta analysis, while effect-sizes are remarkably consistent across literature, the typical effect of reducing class size is small. Furthermore, some literature does not support the correlation at all. Finally, is important to keep in mind that even when there is correlation that does not necessarily reflect causality. So, for example, if schools were to put the worse students together in smaller classes so that the teacher has more time for each of them, a negative correlation might arise between class size and student outcomes. That doesn’t mean that it is the size of the class that is making these students score lower. Usually critics of this policy point out that when it comes to government spending on education there are more efficient ways to invest.

Maybe the key to these disappointing results lies in the structure of classes themselves. The default instruction method in most schools is the “lecture”. Having a teacher explaining the material might meet the needs of auditory or visual learners but often fails to meet the needs of individuals with other learning preferences, such as kinesthetic or social learners. The question of why this has been the primary teaching method for centuries and whether it is fair or efficient to have such system in place will be left for another discussion. However, it is worth considering that in this teaching style, and for the students for which it is tailored, having a more populated classroom might not make a big difference. As long as everyone can still see and listen and that misbehaviour is kept under control, talking to 40 instead of 15 might not be that different after all. If the main occupation of the teacher is to explain the material, mark assignments and provide feedback, then, reducing teacher’s teaching hours, allowing them more time to prepare classes, reflect on their teaching strategies and read students’ work, might turn out to be much more effective than reducing class sizes in terms of student’s learning outcomes. In Shanghai and South Korea for example, two top PISA scorers, while classes are big (35 to 40 students), professors spend roughly half the number of weekly hours in front of the board than many of their western counterparts.

Advocates for reducing class sizes list reasons such as the possibility for more individualized instruction and greater opportunity for student-centred teaching. But if these are not prominent features of the system, and there is no push for a change in teaching methods as class sizes are reduced, then these arguments run the risk of becoming pointless.

Margarida Anselmo, 715


Democratic Education

Modern management that aspires to create a pro innovative corporate culture must give place to a bottom-up approach in which the decision making arise from employees joint involvement.
For such an approach to be practical, employees should be characterized by responsibility, independent thinking and ambition. If we adopt this approach in the macro level, a modern education system should develop graduates with these features.

Democratic education imparts the learning process with these fundamental values of our society. It sees young people not as passive receivers of knowledge, but rather as active co-creators of their own learning. They are not the products of an education system, but rather valued participants in a vibrant learning community.

Democratic education begins with the idea that everyone is unique, so each of us learns in a different way. By supporting the individual development of each young person within a caring community, democratic education assists young people learn about themselves, engage with the world around them, and become positive and contributing participants of society.

Studies show that educational environments engaging young people as active members in their own learning are linked with higher student attendance and student achievement, greater creativity and conceptual learning, and increased fundamental motivation and determination in learning. Moreover, recent brain and cognitive research points to the value of the democratic education learning environment, including key elements such as collaborative projects, age mixing, learning through active experiences, and the importance of a caring community. (Bennis. D. IDEA)

Democratic schools emphasize the student’s right to influence and to be part of the decision-making process. The students are taking part in the school’s “parliament” where they define rules and regulations; they learn to assume responsibility and to influence, they receive more freedom to choose their subjects and to decide their education methods. This approach would develop creativity, independency and responsibility.

Nowadays, there are over 200 schools offering democratic education in more than 30 countries, working with over 40,000 students, most of them in the U.S and Israel . But this approach could also be adopted partially by introducing democratic education into the traditional education system, in fact, traditional schools are constantly being influenced by the democratic approach and some education systems around the world could be characterized as a mix.

The output of this educational approach could be the development of a new age human capital, employees who can think “out of the box”, be better trusted, easier managed, with less rules and regulations and wider space for innovation and breakthrough decision making. These features among employees are better adequate to a fast-changing environment with high demanding customers who expect personal solution for every problem. Moreover, it is common that another outcome of democratic education will be the abundance of potential entrepreneurs who could drive the economy forward producing innovative small and medium enterprises, which are an engine for economic growth and development.

Liron Goldstein, #1857

References:

Education Revolution:

http://www.educationrevolution.org/store/

Wikipedia:

http://en.wikipedia.org/wiki/Democratic_education

IDEA – Institute for democratic education in America:

http://www.democraticeducation.org/

IDEN – International democratic schools:

http://www.idenetwork.org/democratic-schools.htm


WHO PAYS THE UNIVERSITY IN ITALY?

The Nobel Prize for Economics Kenneth Arrow (1) states that the use of public resources to finance higher education has as indirect effect the increase in inequality. In fact, given that the majority of students who engage in tertiary education comes from wealthy families, then contributing to their studies with public resources means strengthening their advantage at the expense of those who have lower incomes.

The Italian case is particularly interesting (2). Using data provided by the Bank of Italy of 2009 (3) we consider two groups of citizens: those with high income (more than € 31 thousand per year) and those on low incomes (less than € 31 thousand per year), which accounts for 80% of Italian taxpayers and, of these, 70% of them do not have children enrolled at the university. The marginal rate of income tax (IRPEF) for these low-income taxpayers is 38%; therefore they contribute to 38% to finance all government spending, including that for the university. For this reason of the 7 billion per year that make up the public expenditure on universities (FFO – Ordinary Financing Fund) we assumed that 38% (about 2.5 billion) will be financed by low-income citizens who do not have children to university.

Being about 40% of college students with high-income families, then about 40% of the 2.5 billion contribution is a transfer from low-income taxpayers without children to college to the high-income taxpayers with children students . This certainly seems to be an unfair transfer of wealth. Finally, the remaining half billion goes to support the remaining 60% of students from low-income families but with their offspring to college: so it seems  a transfer from the poor without and those with children to college.

Wanting to give a more detailed interpretation of  the latter data, we consider it as a transfer from the poor to the rich of the future, assuming that probably those who attend university will receive an higher salary in the future; so this second type of transfer could be interpreted as unfair as well, which in fact may be the positive externalities to the poor family net contributor?

Even without considering this interpretation that can be considered controversial, nearly half of the transfers are from taxpayers poor and to the rich ones with children to college.

Figure 1: deciles of population (according to the declared income)

Figure 1: deciles of population (according to the declared income)

Another study (4) focuses on the effective progressivity of the university fees only between the families who have children students. The result says that, by ordering the student population into deciles according to the declared income, the balance (figure 1) between the amount of FFO that everyone pays through the personal income tax and the portion of FFO of which each income group benefits through the inclusion of the children  to the university indicates that the poorest are in active, while the richest is in deficit. So the richest taxpayers group finances the university more than they used. This fact leads us to believe that the system of university funding is redistributive and progressive; between families with college students we can say there are transfers from those with higher incomes to those with low incomes.

The fact that the system is fair compared to the census does not in any way imply that it is also efficient, meaning that the resources available are used in the best way inside of it.

Finally, as we have seen, a fair system among students, it may not mean a fair system among society.

References:

(1) Kenneth Arrow, Education Economics, Volume 1, Issue 1, 1993.

(2) Andrea Ichino e Daniele Terlizzese, Facoltà di scelta, Rizzoli, 2013.

(3) Federico Cingano e Piero Cipollone, “Returns to Education”, QEF, Bank of Italy, 2009.

(4) Emanuele Pugliese e Ugo Gragnolati, “Chi finanzia l’università pubblica?”, lavoce.info, 2013.

Stefano Pelloni


An overlook on liquidity constraints in higher education

There has been a long debate concerning the role that initial financial resources play on the choice of going to higher education. Ideologies aside, and looking at education through an overlapping generations model developed by Galor and Zeira, we can try to get some answers. (Galor and Zeira, 1993, Review of Economic Studies).

Taking into account the role of budget constraints and considering that financial markets are imperfect, only two options remain for those with financial constraints: finding a job or getting a loan to pay for school.  Regarding the latter option, getting a loan is hard and the return for us and future generations of our family may not be the one expected.  In those cases where budget constraints exist, the high interest rates assume an important role, as the parents’ income does not allow paying college tuitions or other school costs. In most of those cases, in the long run, a student loan may not be profitable, as the high costs will determine that the best choice is to work instead of going to school, which in turn will create a persistent pattern on educational choices, and contribute to a correlation between low income and low educational attainment.

Empirically speaking, the impact of liquidity constraints seems to be relevant only on secondary school.  Moreover, factors like secondary final grade seem to have a higher influence on university enrollment. However, more recent studies in UK and US, where on the last decades tuitions increased significantly, showed that credit constraints seem to impose a significant influence on the choice concerning higher education, therefore making more and more important to study liquidity constraints on education.

Lastly, and looking at possible policies to avoid persistent gaps in educational attainment,  increasing public expenditure  and free universal higher education seem to be the most popular ones. Nonetheless, redistributive policies have been stated as more efficient, since it could relax families’ financial constraints and allow more students to opt for higher education. An interesting remark on universal higher education is the possibility that this policy measure lead to a switch on redistributive policies – as most of the students in university come from high income families, and so they would be the ones who would benefit the most from lowering tuitions. Moreover, examples in Northern Europe, show it may not be an efficient way of increasing enrollment rates. If we look at the case of Denmark, where there are financial aid for all students who go to college and zero tuition fees, notwithstanding its high enrollment rates in tertiary education (80% in 2012 according to the WorldBank), we still observe a gap where students from high income families tend to go more to university than those from low income backgrounds. In conclusion, some more effective educational policies regarding higher education may be subsidizing low income students who wish to attend higher education or investing public resources on low levels of education to increase its quality and with that allow everyone to have an unconstrained choice on education.

 

Ana Catarina Neves

 

 


Return and Productivity of PhDs in Economics

In most countries a PhD is a basic requirement for a career as a researcher. But, is there any evidence that PhD graduating institutions produces “stars”, i.e. successful researchers in the sense that they are productive?

First, it is important to think about the monetary impact of having a PhD. Does a PhD improve earnings? The value of education qualifications concentrates upon the “premium” the qualification offers to the individual that possesses it. There is evidence that the “graduate premium” (i.e. the difference over the working lifetime of the earnings of a graduate relative to a person who could have but did not study) is positive and significant. In terms of a PhD, a study showed that the premium is higher when compared to the master’s premium. While men with a master earn generally more than the base and women with a master earn also more, a PhD increases this gap even more for both men and women. However, it is striking that there is a decline in the return (see Table 1). For both men and women the difference between the master’s premium and PhD premium is small. Yet, the premium will also depend on the subject of study (as shown in Table 1). Since, the objective of this analysis is to think about the productivity of PhDs in Economics, it is relevant to focus on the social science outcomes in the Table 1. Hence, the outcomes for social science tell us that earnings seem not to increase when a person has a PhD. A reason for this result is suggested in the above mentioned paper:

“among graduates with good degrees of the characteristics that incline someone to go into postgraduate work may well be ones which would make that person less attractive to a potential non-academic employer [so that] someone who goes on to postgraduate study…improves his own employability and likely income even though these remain below employability and likely income of those good graduates who have no wish to go on to postgraduate study”.

earnings premia

Thus, when considering doing a PhD, for instance, in Economics the individual should not take the average effects on earnings into account for his or her decision.

Regarding the outcomes in productivity when holding a PhD in Economics, the outcomes are interesting. According to a paper, which uses data from people who received an Economics PhD from 154 American and Canadian institutions between 1986 and 2000 and a database of academic papers published between 1985 and 2006, the conclusion is that “If the objective of graduate training in top-ranked departments is to produce successful research economists, then these graduate programs are largely failing”. The reason is that only few individuals holding a PhD are producing a “credible” number of papers by their sixth year after graduation. What is a “credible” number? Commonly it is said that “quantity does not reflect quality”. And so, the authors used an index that adjusts the number of publications by the quality of the journal it appears in. They created an “AER equivalent” meaning that other journals are indexed in relation to the American Economic Review. For instance, five papers in the Economic Journal are equivalent to one paper in the American Economic Review. In fact, what they concluded was that, as expected, graduates from the top universities can be extremely productive producing over 4 AER-equivalent papers over six years. However, the great majority of PhD students, even at top universities, produce much less than 4 AER-equivalent papers.

phd

So, what is the reason for successful PhD applicants that studied in the best institutions to have low performance as researchers? The authors of the paper suggest 3 reasons for this. First, to be a good researcher grades are not enough. They point out the need to have attributes such as creativity or the aptitude for academic networking. Second, there might be “a virtuous circle in professional success”, i.e. if a graduate manages to get a good first job where he has a good mentor and possibilities to publish then he will probably have more papers published by good journals in the future. The last reason is that top students may receive more attention from the faculty and consequently may have better projects. These students will in turn work harder to preserve their position in the future.

As a conclusion, we may say that top institutions are able to produce “stars” but the productivity of a PhD student will depend on many factors such as luck! So, looking only at the number of papers published may not be enough to draw conclusion about productivity.

#755


Observing the Unobservable: Orchids and the Stress Gene

Establishing the causal impact of education on earnings has always been a difficult task. While it is widely accepted that higher levels of education are linked to higher earnings, it is unclear that this is due to education itself. It is possible, and likely, that individuals that obtain higher levels of education are unobservably different to those that obtain lower qualifications, and for this reason alone reap higher incomes. For instance, people that do well in school may have higher earnings simply because they are more intelligent or better adjusted[1].

Essential to answering this question, then, is finding a way to control for these so-called “unobservables”. A popular way of doing so entails comparing identical twins. This method allows researchers to control for genes and upbringing[2]. However, it also makes a strong assumption: that identical twins do indeed have identical ability, and that any differences in educational attainment are exogenous, or random. Another way to establish causality is to use the instrumental variables method, whereby the endogenous variable (educational attainment) is replaced by a variable with which it is correlated, but at the same time does not directly affect income. Angrist and Krueger (1991) use quarter of birth for this purpose[3]. However, as with most IVs, this method has its pitfalls: the extent to which quarter of birth affects schooling is debatable, and there have been doubts as to its exogeneity. In fact, research has shown that winter births are disproportionately realised by teenagers and the unmarried[4].

Recent developments in psychiatry and genetics may provide a way to control for this ineffable factor that affects both educational outcomes and income. Scientists have isolated a part of a specific gene that is responsible for how individuals react to stressful situations. A meta-analysis by Caspi et al. (2010) shows that individuals with a specific variant of this gene are more likely to be neurotic, reactive to threatening stimuli, and prone to depression[5]. They conclude that there is sound evidence for genetically-driven individual differences in stress sensitivity.

Ellis and Boyce (2008) extend on these findings and conclude that there are two types of individuals with respect to “biological sensitivity to context”: dandelions and orchids[6]. Dandelions, they argue, are less sensitive to context, and therefore more likely to thrive irrespective of their environment. Orchids, on the other hand, are highly reactive to context, and are consequently more likely to be damaged by bad environments and life events. Nonetheless, if exposed to a nurturing environment, orchids are more likely than their peers to develop exceptional talents and pro-social behaviour.

In short, individuals with a certain variant of a certain gene are more likely to act a certain way, given a certain context[7]. This can bring us closer to uncovering the causal impact of education. If researchers were to use the interaction between an individual’s gene variant and their upbringing (for instance, parents’ education), then it would be, at least in part, possible to control for what was hitherto deemed “immeasurable”.

By Margarida Madaleno

[1] Card, D. “The Causal Effect of Education on Earnings.” In Handbook of Labor Economics, by O. Ashenfelter and D. Card, 1801-1863. Elsevier Science, 1999.

[2] Ashenfelter, O., and A. Krueger. “Esimates of the Economic Return to Schooling from a New Sample of Twins.” The American Economic Review, 1994: 1157-1173.

[3] Angrist, J., and A. Krueger. “Does Compulsory School Attendance Affect Schooling and Earnings?” The Quarterly Journal of Economics, 1991: 979-1014.

[4] Buckles, K. & Hungerman, D. (2013). Season of Birth and Later Outcomes: Old Questions, New Answers. Review of Economics and Statistics, 711-724.

[5] Caspi, A., A. Hariri, A. Holmes, R. Uher, and T. Moffit. “Genetic Sensitivity to the Environment: The Case of the Serotonin Transporter Gene and its Implications for Studying Complex Diseases and Traits.” American Journal of Psychiatry, 2010: 509-527.

[6] Ellis, B., and T. Boyce. “Biological Sensitity to Context.” Current Directions in Psychological Science, 2008: 183-187.

[7] Dobbs, D. “The Science of Success.” The Atlantic, December 2009.


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Is Higher Education still worth it?

As the consequences of the global recession and the debt crises in the western countries continue to affect national economies and labor markets, the importance of higher education has been questioned by some citizens. A report by McKinsey concluded that 41% of graduates from the USA’s top colleges could not find jobs in their chosen field and 50% would choose today a different major or school; while Chegg, a company that provides online help to students and collaborated with the study added that only 39% of the managers say that students are ready for the workforce. In several European countries, youth unemployment raised sharply, even between among those with higher education, leading to the belief that the returns for investing in higher education are not as high as in the past (i.). For these reasons, some economists have asserted the existence of a “bubble in higher education”, meaning that the comparatively high amounts paid by students to get a college degree (principally for US) do not correspond to future employment prospects and wages of these students. (ii.)

The value of a degree boils down to supply and demand. The difference between average pay for university graduates and those with secondary-school degrees is called the “college wage premium”. When firms need more skilled workers their demand for university graduates grows, and the premium rises. When the supply of graduated workers grows faster than the supply of less-educated workers, the premium will stabilize or decrease.

In the last century, in rich countries firms demanded more and more of the best-educated workers, but recently the increase in demand has been lower than the increase in supply. In the case of OECD countries, and according to data from the World Bank, the percentage of enrollment rates on tertiary education passed from 51% in 2000 to 71% in 2012. So rapid was the change in labor markets that they became “saturated” with new graduates, consequently the premium has been decreasing.

Also, students are paying more for education and borrowing more to do so (from 1993 to 2012 the share of American graduates taking student loans increased 25%), and the big problem is that returns on investment in education are also getting more volatile. A study from Payscale, a research firm, concluded that the returns vary according to institution and degree. They estimated the return by taking into account the investment (the cost of the degree after financial aid) and how much they earn today. Graduating in great universities like Caltech and MIT creates a 30-year return on a bachelor degree of about $2,000,000, while attending in not-so-good schools like Valley Forge Christian College made $148,000 worse off graduates. The return is estimated in the case of degrees, engineering is always a good bet; an engineer from the U. C. Berkeley can expect to be $1,100,000 better off after 20 years than someone that never went to college, even the least lucrative courses generated a 20-year return of $500,000; in the case of arts and humanities the returns are much more varied, an art degree from Columbia pays off generously while an arts graduate from Murray State University in Kentucky can expect to make $147,000 less over 20 years than a high school graduate, after paying for his graduation. A caveat in this study is that they compared the graduate’s earnings with the earnings of people that just finish the secondary instead of graduate’s earnings if they did not have done college, overstating the true value; some people did not go to college just because they did not have enough grades to get in, so the premium that graduates earn can be higher because they are smarter on average than non-graduates. (iii.)

As more and more people are completing higher education some students are now investing in higher education not to learn but to signal to firms that they are as good as the others that went to the university, this is still rational but certainly not efficient. Students need to start to look to studies like Payscale and make more informed choices as returns to higher education are getting more volatile.

Marli Fernandes


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Does education improve your health?

Education is said to increase happiness and health.

First, education is likely to generate happiness.

The more people go to school and get diploma, the more likely they are to get the job they expect to have and that satisfies them. As a result, they are more engaged in their positions and they are happier in their lives as a whole. Indeed, according to psychologist Laura Carstensen, director of the Stanford Center on Longevity, people with more education have better jobs, associated with better wages, that are often less physically demanding and that usually deliver more satisfaction and pleasure.

Then, education is bound to improve health as it increases life expectancy and life conditions.

Indeed, people having more years of education are more likely to live longer. According to research used in the book How to live to 100, education is likely to be the single variable leading to health and longevity. As said above, people with higher education have the jobs that meet their expectations, which results in a comfort that is source of less stress, which increases their life expectancy. According to David Cutler and Adriana Lleras-Muney’s research on education-longevity around the world, college graduates can expect to live five years longer than people not having finished high school. Moreover, the number of years spent at school has an impact on life expectancy of next generation. Indeed, the infant mortality rate among US children born to women who did not graduate from high school is 8.1% while it is 4.2% among those born to women who did get a college degree.

Then, not only people going to school longer have a longer life but also are they living in better health conditions. Indeed, US people with four more years of education are less likely to have and die from chronic diseases such as a heart disease (-2.2%) and diabet (-1.3%). Moreover, they are less bound to be overweight (-5%) and to smoke (-12%). This tight relationship between years of schooling and health conditions can be explained by two main reasons. First, as the brain is like a muscle, the more people use it, the more they can hope for a lifelong mental health. Then, more years of education lead to higher wages that give easier access to healthy food and safer homes. For instance, a college degree gives access to highly-paid job with less physical working conditions and a better health insurance. Also, people with more education are likely to live in a safer and more comfortable neighborhood with healthy lifestyles that encourage them to follow this healthy way of living.

Nevertheless, going through various articles dealing with education and happiness, I was astonished not to read more research papers on hot topics linking highly-paid jobs and psychological health diseases, such as burnout. Indeed, higher education empowers people to get a highly-paid job, but such wages are justified by higher responsibilities at work. These often translate into stress and psychological pressure that can in the end reduce life expectancy or worsen life conditions (people live longer but they can be depressed or live with the consequences of a heart attack).

Zoé Gautheron

Sources:

http://www.lanthorn.com/article/2012/02/college_education_happiness_level_are_related_study_says

http://www.rwjf.org/en/research-publications/find-rwjf-research/2012/12/why-does-education-matter-so-much-to-health-.html

http://money.usnews.com/money/personal-finance/articles/2012/04/10/why-learning-leads-to-happiness


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Turkey: Raising equality through education

“Men and women have equal rights and the State is responsible to implement these rights. No privilege shall be granted to any individual, family, group or class.” This is what article number 10 of the Turkish constitution asserts.

Although women on paper are entitled with the same rights as men, very often the society’s customs prevent them to exercise their rights. According to the Global Gender Gap Index 2014, Turkey was ranked 125th over 130 countries in the attempt to close the gender gap between men and women. Turkey has recently implemented significant changes in order to overcome the gender inequality issue. Moreover, as a possible future member of the European Union, Turkey aims at going along with EU’s policies and one central area of improvement is education.

On the 3rd of May 2011, Turkey initiated the Project for Increasing Enrolment Rates Especially for Girls (ISEG). This project has been developed until 2013 as part of the Human Resources Development Operational Program (HRD OP) under the scope of the Instrument for Pre-accession Assistance (IPA) and it was promoted in 16 Turkish cities through activities and trainings that involved teachers, parents, and children from both primary and secondary school. The first objective of the project was increasing enrolment rates for girls in secondary education, the second was decreasing dropouts and absenteeism for girls in primary and secondary education. The results of this initiative seemed to be very encouraging. Just few months after the beginning of the project, in the cities where it was implemented, some effects were already visible: 2,800 new female enrolments to catch up education, the start of 100 small local projects with the purpose of raising awareness among the population, support and counselling towards over 3,000 young girls aimed at keeping them in school. Although the project has contributed to obtain increasing enrolments and fewer drop-outs, World Bank data from 2012 show that 60% of the male population had completed at least lower secondary school, while the percentage for female was still quite low: 39%. Turkey seems to have still a long way to achieve gender equality.

But what are other implications for low investment in female education? Research by the World Bank Development Research Group (Dollar and Gatti, 1999), states that under-investment in female human capital is not an efficient economic choice; female education raises national income and higher income also means higher gender equality in all fields, not only in the education one. As additional proof of this, it is important to mention that, according to Dollar and Gatti, secondary female attainment has a robust positive impact on economic growth, which results to be much stronger than that one for male secondary attainment.

Sometimes, the low access to education for females can also be explained by social preferences, i.e. religious orientation that in Turkey is quite strong. Therefore, it is possible that gender inequality in Turkey is not a distortion from the point of view of the welfare, meaning that the overall society may be better off when there is a gap between educational levels of women and men. However, it is a distortion in the sense that the country pays a price for not investing in girls in terms of slower growth and reduced income.

Turkey should be aware that not attempting to fill this gap by leaving behind its social preferences, negatively affects its economics growth as well as being detrimental for about 51% of its population (women population share, 2013).

Giulia Casagrande, 745


German „Betreuungsgeld” – Is this subsidy enhancing inequality in educational opportunities?

In 2012 a huge public discussion on the so-called “Betreuungsgeld” emerged in Germany. “Betreuungsgeld” is a child care subsidy which was claimed to be introduced by the Bavarian party CSU. The design of this subsidy is the following: Parents that raise children aged between one and three years and don’t claim public financed kindergarten to support them, are eligible for a financial support in the height of 150€ per month. The eligibility is independent from income or other social transfers received.[1] The law came into force on the 1st August 2013[2] but the discussion on that topic still continues.

According to the CSU the law is necessary to preserve parents’ freedom to choose whether to stay in job and send their children to kindergarten or stay at home to take care of their kids by themselves.[3] Representatives of the CSU as well as the German chancellor Angela Merkel argued that this is only fair, because those parents that stay at home or send their children to a private kindergarten don’t strain the public budget by accepting the offer of a public financed capacity in a kindergarten.[4]

This argumentation is comprehensible but it abstracts away from possible incentive effects. By supplying a subsidy on keeping children at home, incentives not send children to kindergarten are given. The questions that should have been answered before implementing the law is: Does the “Betreuungsgeld” decrease parents’ willingness to send their children to kindergarten and, if yes, does this have an impact on later education?

The question if “Betreuungsgeld” prevents parents from sending their children to kindergarten was answered by several studies. Results were alarming as data show that the subsidy especially provides an incentive to socially deprived families to keep their children at home.[5] This is plausible regarding the fact that a transfer of 150€ is a relative small amount compared to the income of wealthy families whereas it is relatively high for low-income receivers.  The conclusion drawn in a study of the German Youth Institute is that in the course of equal education opportunities for children “Betreuungsgeld” is contraindicated.

These findings are problematic if the visit of a kindergarten increases the probability of an educational success. It can be empirically shown that attendance in kindergarten may have “a long-lasting positive effect on educational chances”[6] and that kindergarten non-attendance is associated with significantly lower probability to attend highest secondary school track.[7]

Regarding this empirical evidence one should at least be suspicious on the effect of the “Betreuungsgeld” on educational equality of children with different social backgrounds. The subsidy has a negative incentive effect on the willingness of parents to send their children to kindergarten, especially regarding socially deprived families. As especially kids coming from low-income backgrounds may profit by going to kindergarten as it enhances their educational chances, this is a negative impact of the “Betreuungsgeld”.  Of course the argument that it enhances parents’ freedom of choice is true, but for children’s welfare and later educational career it could be debilitating and this should be in focus of political reflections.

Clara Pott

[2] First with a transfer of 100€ per month. Since 1st of August 2014 it increased to 150€.