Economics of Education

November 19-20, 2015
Caroline M. Hoxby of Stanford University, Organizer

Scott E. Carrell, University of California, Davis and NBER; Mark Hoekstra, Texas A&M University and NBER; and Elira Kuka, Southern Methodist University

The Long-Run Effects of Disruptive Peers

A large and growing literature has documented the importance of peer effects in education. However, there is relatively little evidence on the long-run educational and labor market consequences of childhood peers. Carrell, Hoekstra, and Kuka examine this question by linking administrative data on elementary school students to subsequent test scores, college attendance and completion, and earnings. To distinguish the effect of peers from confounding factors, they exploit the population variation in the proportion of children from families linked to domestic violence, who were shown by Carrell and Hoekstra (2010, 2012) to disrupt contemporaneous learning. Results show that exposure to a disruptive peer in classes of 25 during elementary school reduces earnings at age 26 by 3 to 4 percent. Authors estimate that differential exposure to children linked to domestic violence explains 5 to 6 percent of the rich-poor earnings gap in our data, and that removing one disruptive peer from a classroom for one year would raise the present discounted value of the classmates' future earnings by $100,000.

Methods Symposium

Sample Selection Corrections
Rob Garlick, Duke University, and Joshua M. Hyman, University of Connecticut

Data vs Methods: Quasi-Experimental Evaluation of Alternative Sample Selection Corrections for Missing College Entrance Exam Score Data

In 2007, Michigan began requiring all high school students to take the ACT college entrance exam. Garlick and Hyman exploit this natural experiment to compare how well several parametric and semiparametric correction methods applied to pre-policy change data can match the "true" post-policy distribution of latent scores. Performance is uniformly poor when relying solely on student demographics and school- and district-level characteristics as predictors. However, correction methods perform well when including students' prior test scores as predictors. There is no substantial difference in performance between simple parametric corrections and less restrictive semiparametric corrections. The researchers conclude that in this setting the gains from using less restrictive econometric methods are small relative to the gains from seeking better data.

A Novel, Discontinuity-Based Test for Endogeneity
Gregorio S. Caetano and Hao Teng, University of Rochester, and Joshua Kinsler, University of Georgia

Towards Consistent Estimates of Children's Time Allocation on Skill Development

Cognitive and non-cognitive skills are critical for a host of economic and social outcomes as an adult. While there is broad agreement that a significant amount of skill acquisition and development occurs early in life, the precise activities and investments that drive this process are not well understood. In this paper Caetano, Kinsler, and Teng examine how children's time allocation affects their accumulation of skill. Children's time allocation is endogenous in a model of skill production since it is chosen by parents and children. The researchers apply a recently developed test of exogeneity to search for models that yield causal estimates of the impact time inputs have on child skills. The authors show that the test, which exploits bunching in time inputs induced by a non-negativity time constraint, has power to detect endogeneity stemming from omitted variables, simultaneity, measurement error, and several forms of model misspecification. Results suggest that with a rich set of controls the authors can consistently estimate the impact of time inputs on skills, though there is significant heterogeneity in which controls matter for different skills at different ages. Active time with adult family members appears to be the most productive use of time in developing cognitive skills for children aged 12 to 17. Sleeping or napping is the most productive input for non-cognitive skill development for children aged 5 to 11.

Information in Cardinal versus Ordinal Test Scores
Eric Nielsen, Federal Reserve Board

Achievement Gap Estimates and Deviations from Cardinal Comparability

In this paper, Nielsen assesses the sensitivity of standard empirical methods for measuring group differences in achievement to violations in the cardinal comparability of achievement test scores. The paper defines a distance measure over possible weighting functions (scalings) of test scores. It then constructs worst-case bounds for the bias in the estimated achievement gap (or achievement gap change) that could result from using the observed rather than the true test scale, given that the true and observed scales are no more than a certain distance from each other. The paper next estimates these worst-case weighting functions for black/white and high-/low-income achievement gaps and gap changes using several commonly employed surveys. The results of this empirical exercise suggest that cross-sectional achievement gap estimates tend to be quite robust to scale misspecification. In contrast, achievement gap change estimates seem to be quite sensitive to the choice of test scale. The paper next extends the bounding methodology to study bias in regression coefficients when the left-hand side variable is incorrectly scaled. The same survey data suggest that regression coefficients relating income to achievement in the cross-section are quite robust to scale-misspecification, while first differences in regression coefficients appear to be much more fragile. Standard empirical methods do not robustly identify the sign of the trend in achievement inequality between students from different racial groups and income classes.

The Frailty of Regression Kink Methods
George Bulman, University of California, Santa Cruz, and Caroline M. Hoxby

The Return to the Tax Credits for Higher Education (NBER Working Paper No. 20833)

Three tax credits benefit households who pay tuition and fees for higher education. The credits have been justified as an investment: generating more educated people and thus more earnings and externalities associated with education. The credits have also been justified purely as tax cuts to benefit the middle class. In 2009, the generosity of and eligibility for the tax credits expanded enormously so that their 2011 cost was $25 billion. Using selected, de-identified data from the population of potential filers, Bulman and Hoxby show how the credits are distributed across households with different incomes. They estimate the causal effects of the federal tax credits using two empirical strategies (regression kink and simulated instruments) which authors show to be strong and very credibly valid for this application. The latter strategy exploits the massive expansion of the credits in 2009. Bulman and Hoxby present causal estimates of the credits' effects on postsecondary attendance, the type of college attended, the resources experienced in college, tuition paid, and financial aid received. They discuss the implications of our findings for society's return on investment and for the tax credits' budget neutrality over the long term (whether higher lifetime earnings generate sufficient taxes to recoup the tax expenditures). Authors assess several explanations why the credits appear to have negligible causal effects.

Douglas N. Harris, Tulane University, and Matthew Larsen, University of California, Davis

The Effects of the New Orleans Post-Katrina School Reforms on Student Academic Outcomes

The school reforms put in place in New Orleans after Hurricane Katrina represent the most intensive test-based and market-based school accountability system ever created in the United States. Collective bargaining was ended, yielding flexible human capital management. Traditional attendance zones were eliminated, expanding choice for families. And almost all public schools were taken over by the state, which turned over management to outside non-profit charter management organizations working under performance contracts. Ten years later, Harris and Larsen provide the first examination of the effects of this package of reforms on student achievement. Identification is based on multiple difference-in-difference (DD) strategies, using outcomes before and after the hurricane and reforms in New Orleans and a matched comparison group that experienced hurricane damage but not the school reforms. The estimation procedures address potential threats to identification, including changes in the population, strategic behavior in test scores from high-stakes accountability, the influence of the interim schools attended by evacuated students, and the trauma and disruption from the hurricane itself. With the possible exception of test-based accountability strategic behavior, these factors seem to have a small influence and, collectively, they appear to cancel each other out. The results suggest that, over time, as the reforms yielded a new system of schools, they had large positive cumulative effects of 0.2-0.4 standard deviations.

Michael Dinerstein, University of Chicago, and Troy D. Smith, Stanford University

Quantifying the Supply Response of Private Schools to Public Policies

Public school policies that cause a large demand shift between public and private schooling may cause some private schools to enter or exit the market. This private school supply response further alters students' choices and likely amplifies the policy's effect. Thus, the policy effects under a fixed versus a changing market structure may be very different. To study this difference, Dinerstein and Smith consider New York City's Fair Student Funding reform, which changed the budgets of the city's public schools starting in the 2007-08 school year. The researchers find that relative to the schools that did not receive additional funding, public elementary and middle schools that benefited from the reform saw an estimated increase in enrollment of 36 students for each $1,000 in per student funding. They also find evidence of private school exit in response to the reform by comparing private schools located close to or far from public schools that received additional funding. A small private school located next to a public school that received a $1,000 increase per student funding was an estimated 4.8 percentage points, on a base of 16%, more likely to close in the subsequent six years. The authors estimate a concise model of demand for and supply of private schooling and estimate that 32% of the total enrollment increase came from increased private school exit and reduced private school entry. Finally, the researchers assess the reform's impact on aggregate achievement. They find that while the reform improved school quality at the public schools that received additional funding, the sorting of some students from private to public schools led them to potentially lower-quality schools and possibly undid much of the reform's positive achievement effect.

Esteban M. Aucejo, London School of Economics, and Jonathan James, California Polytechnic State University

The Path to College Education: Are Verbal Skills More Important than Math Skills?

Skills are multiple in nature and used with different intensity across activities. The aim of this paper is to study the differential roles of math and verbal skills for educational outcomes. By estimating a multi-period factor model of skills, using a rich panel database that follows all students in England from elementary school to university, Aucejo and James find that verbal skills play a greater role in explaining university enrollment than math skills. In addition, the researchers use their framework to study the process of skill development during compulsory schooling. Results show that 40% of the variance of skills acquired by the end of compulsory education is determined after the second grade, which indicates some scope for overcoming initial skill disadvantages. Finally, the authors study the gender gaps in college enrollment and STEM fields, showing that verbal skills and comparative advantage in skills are key determinants of these gaps.

Andrew C. Barr, Texas A&M University, and Sarah Turner, University of Virginia and NBER

Aid and Encouragement: Does a Letter Increase Enrollment Among UI Recipients?

Displaced workers may not be fully aware of the federal financial aid and enrollment opportunities available to them. Indeed, incomplete knowledge of financial aid availability and eligibility during the recent recession may have limited the extent to which workers receiving Unemployment Insurance (UI) took advantage of collegiate opportunities. In May of 2009, an executive initiative and guidance from the Department of Labor and the Department of Education encouraged states to send letters to UI recipients. These letters: (1) suggested training as an avenue to better job security and higher wages, (2) informed displaced workers about the Pell grant program, and (3) suggested that displaced workers may be given special consideration for Pell grant receipt. Barr and Turner use variation in the sending of Pell letters within and across states to identify the effect of this information on the college enrollment decisions of millions of individuals who began drawing UI between May 2009 and November 2010. Using the 2008 Panel of the Survey of Income and Program Participation, they find that individuals who are likely to have received a letter are four to five percentage points more likely to enroll in college within the following six months. A back of the envelope calculation suggests that the intervention resulted in an increase in enrollment of at least half a million UI recipients. Individuals exposed to the letter appear to complete additional years of college, though our limited window of observation leaves open long-term questions about the economic return to individuals and society.

Michael D. Bates, University of California, Riverside

Public and Private Learning in the Market for Teachers: Evidence from the Adoption of Value-Added Measures

While a large literature focuses on informational asymmetries between workers and employers, more recent studies focus on asymmetric information between current and prospective employers. Despite the intuitive appeal of the theory, there is little direct, empirical evidence that current employers benefit from an informational advantage. Bates adapts models of public and private employer learning to the market for teachers. He then uses statewide, micro-level, administrative data from North Carolina to formulate value-added measures (VAMs) of teacher productivity. The researcher exploits the adoption of VAMs of teacher performance by two of the largest school districts in the state, a shock to the available information for some, but not all, employers, to provide an initial direct test of asymmetric employer learning. Consistent with a shock to public information, for job moves within the district, Bates finds that the adoption of value-added measures increases the probability that high-VAM teachers move to higher-performing schools. For moves out of the district, He finds that the impacts of policy are mitigated and even reversed by teachers with lower value-added measures becoming more likely to move to higher-performing schools. This adverse selection to plausibly less informed principals is consistent with asymmetric employer learning. Further, the author finds evidence that these moves lead to an increase in the sorting of teachers across schools within district, exacerbating the inequality in access to high quality teaching.

Marc Gurgand, Paris School of Economics; Clement de Chaisemartin, University of Warwick; and Luc Behaghel, Inra

Ready for Boarding? The Ambiguous Effects of a Boarding School for Disadvantaged Students

Boarding schools substitute school to home, but little is known on the effects this substitution produces on students. Gurgand, de Chaisemartin, and Behaghel present results of an experiment in which seats in a boarding school for disadvantaged students were randomly allocated. Boarders enjoy better studying conditions than control students. However, they start outperforming control students in mathematics only two years after admission, and this effect mostly comes from strong students. Boarders initially experience lower levels of well-being but then adjust. This suggests that substituting school to home is disruptive: only strong students benefit from the school, once they have adapted to their new environment.

Massimo Anelli, Bocconi University

Returns to Elite College Education: a Quasi-experimental Analysis

What are the economic returns of attending a high quality college? This work takes advantage of a sharp discontinuity in the probability of admission to an elite Italian university at the admission score cutoff to estimate causal returns to college education quality. Anelli uses a newly constructed dataset which links academic performance to college admission and labor market data for individuals that applied to college between 1985 and 2005. He estimates that attending an elite university yields a 52% premium in yearly earnings. These returns are heterogeneous over the earnings distribution. Students scoring right above the admission threshold are more likely to have earnings above the median, but are equally likely to be top earners. Anelli explores the potential mechanisms and finds that students with a score right below the admission cutoff are less likely to graduate from college and choose different majors. Cumulated over 15 years, the span of earnings data for the sample, the net premium of attending the elite university amounts to $93,213.

Richard Murphy, University of Texas at Austin, and Gillian Wyness, UCL Institute of Education

The Best Things in Life are Free, But Some Students Need Bursaries: Financial Aid and College Outcomes

Billions of pounds per year is spent on aid for poor students in HE systems around the world, yet there remains limited evidence on the causal effect of these payments, particularly on the intensive margin. This is an empirical challenge since student aid is correlated with characteristics which influence both college enrolment and achievement. Murphy and Wyness overcome these challenges by studying a unique form of non-linear means tested financial aid which is unadvertised, varies substantially across institutions, and is subject to shifts in generosity across cohorts. Using student-level administrative data collected from 10 English universities, authors study the effects of aid receipt on college completion rates, annual course scores, and degree class, using fixed effects and regression discontinuity methods. Their findings suggest that each £1,000 of financial aid awarded increases the chances of gaining a good degree by around 7 percentage points, driven by completion of the concurrent year and course scores. Whilst their results indicate that the impact of financial aid decreases as parental income rises, Murphy and Wyness find no differences in the gains by the enrollment test scores of the student. Using these estimates authors provide optimal financial aid schemes for each university given their student populations and budget constraints.

Rodney Andrews, University of Texas, Dallas and NBER; Scott A. Imberman, Michigan State University and NBER; and Michael Lovenheim, Cornell University and NBER

The Effects of Targeted Recruitment and Comprehensive Supports for Low-Income High Achievers at Elite Universities: Evidence from Texas Flagships

Andrews, Imberman, and Lovenheim study a set of interventions in Texas that were designed to overcome the multitude of hurdles faced by low-income, high-ability students in the higher education system. The Longhorn Opportunity Scholars (LOS) and Century Scholars (CS) programs were implemented in 1999 and 2000, respectively, and involved recruiting at specified low-income high schools, providing additional financial aid, and enhancing academic supports once enrolled in college if students attended University of Texas - Austin (LOS) or Texas A&M - College Station (CS). These two schools are the flagships of Texas public universities and are widely regarded as the top public universities in Texas. Using administrative data on all public college students in Texas authors find via difference-in-differences estimators that these programs, and in particular the LOS program, had large, positive effects on high achieving students. Both interventions increased attendance at flagships while LOS also increased attendance at other 4-year schools at the expense of 2-year schools. The latter finding indicates substantial spillover effects of the recruitment portion of the program to students who are not able to attend the flagships. Reduced-form intention-to-treat results show that, amongst students in the top 30% of their high school class who attend any college, BA attainment increases by 3.7 percentage points from LOS while earnings increase by 4.4%. Upper-bound treatment-on-the treated estimates that attribute all of these earnings gains to flagship enrollment are 61 pp and 107%, respectively. There is no statistically significant impact on these measures from the CS program, but it does increase the likelihood of students majoring in more technically demanding fields like STEM and social sciences and we cannot rule out sizeable positive earnings effects (upper bound TOT estimates are an insignificant 69%). These results indicate that school-based targeted recruitment can substantially increase enrollment of low-income students in higher quality colleges and, when combined with adequate support services, improves educational and labor market outcomes.

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