Economics of Education

November 10-11
Caroline M. Hoxby of Stanford University, Organizer

Caroline Hoxby

It's not the Major, It's the Selectivity: Returns to College Majors

Judith Scott-Clayton, Columbia University and NBER, and Basit Zafar, Federal Reserve Bank of New York

Financial Aid, Debt Management, and Socioeconomic Outcomes: Post-College Effects of Merit-Based Aid (NBER Working Paper No. 22574)

Prior research has demonstrated that financial aid can influence both college enrollments and completions, but less is known about its post-college consequences. Even for students whose attainment is unaffected, financial aid may affect post-college outcomes via reductions in both time to degree and debt at graduation. Scott-Clayton and Zafar utilize two complementary quasi-experimental strategies to identify causal effects of the WV PROMISE scholarship, a broad-based state merit aid program, up to 10 years post-college-entry. This study is the first to link college transcripts and financial aid information to credit bureau data later in life, enabling the researchers to examine important outcomes that have not previously been examined, including homeownership, neighborhood characteristics, and financial management (credit risk scores, defaults, and delinquencies). The researchers find that even as graduation impacts fade out over time, impacts on other outcomes emerge: scholarship recipients are more likely to earn a graduate degree, more likely to own a home and live in higher-income neighborhoods, less likely to have adverse credit outcomes, and are more likely to be in better financial health than similar students who did not receive scholarships.

Hugh Macartney, Duke University and NBER; Robert McMillan, University of Toronto and NBER; and Uros Petronijevic, York University

A Unifying Framework for Education Policy Analysis

This paper develops a framework that, for the first time, compares the cost effectiveness of widely-discussed education policies, including incentive-based reforms. Central to the cost-effectiveness calculation, Macartney, McMillan, and Petronijevic propose an empirical strategy to separate the overall impact of teachers on student achievement into an incentive-varying component – labeled teacher effort – and incentive-invariant teacher ability while imposing minimal assumptions. The strategy draws on exogenous variation in the incentive strength of a well-known federal accountability scheme and rich administrative data covering all public school students in North Carolina over time. The researchers' results from identifying contemporaneous teacher effort and ability separately indicate that a one standard deviation increase in ability is equivalent to 18 percent of a standard deviation increase in student test scores, versus a 5 percent increase in scores for a one standard deviation increase in effort. Further, the overall effect of teachers (measured by value-added) is increasing in accountability incentive strength. The researchers then implement a structural estimation procedure to uncover the persistence of ability and effort, showing that effort affects future scores positively, though by less than ability. Combining these estimates with a model of school decision-making allows the researchers to place incentive-based reforms on a common footing with a range of alternative education policies. For illustration, they show that incentive-based reforms can be more cost-effective than reforms that target teacher ability as a means of improving average student performance.

Juan Saavedra, University of Southern California and NBER; Dario Maldonado, Universidad de Los Andes; Lucrecia Santibanez, Claremont Graduate University; and Luis Omar Herrera Prada, Inter-American Development Bank

Premium or Penalty? Labor Market Returns to Novice Public Sector Teachers

It is unclear whether public sector teachers are under or overpaid relative to other occupations because we generally lack knowledge on teachers' outside labor market options or other unobserved attributes related to compensation. Saavedra, Maldonado, Santibanez, and Herrera Prada document causal labor market returns to public sector novice teachers in Colombia. In 2004, Colombia introduced a national, standardized, teacher-screening exam, scores on which determine eligibility for public sector teaching jobs relative to an exogenous cutoff point. The researchers combine four nationwide administrative data sources in a regression discontinuity approach to document the labor market returns and outside options of recent education college graduates who take the screening test. Applicants who marginally pass the teacher screening test have annual earnings that are 15, 20 and 28 percent greater during the first three years of tenure, respectively, relative to those of applicants below the passing cutoff. Part of the earnings premium stems from the fact that a substantial fraction of public sector teachers hold an outside, predominantly nonteaching job in the formal sector. The total earnings effect is the combination of greater labor supply during the first three years of tenure in the main teaching job and outside jobs and higher daily wages.

Michael D. Bates, University of California, Riverside, and Quentin O. Brummet, Bureau of the Census

Parental Valuation of School Choice: Evidence from Geographic Boundaries

School choice in the United States has expanded rapidly over the past two decades, but the degree to which parents value this expanded choice is unclear. Using multiple estimation strategies that exploit discontinuities along administrative boundaries, Bates and Brummet estimate the degree to which access to inter-district school choice is capitalized into the housing market. The researchers' estimates indicate a positive home-price premium associated with access to higher-performing school districts, and this premium decreases as distance between residence and district of choice grows and charter school access increases. The school choice premium also increases with the differential in school performance between residential districts and districts of choice, though not enough to overcome the residential school quality home price premium.

Lauren L. Schmitz, University of Michigan, and Dalton Conley, Princeton University and NBER

The Effect of Vietnam-Era Conscription and Genetic Potential for Educational Attainment on Schooling Outcomes (NBER Working Paper No. 22393)

This study examines whether draft-lottery estimates of the causal effects of Vietnam-era military service on schooling vary by genetic propensity toward educational attainment. To capture the complex genetic architecture that underlies the bio-developmental pathways, behavioral traits and evoked environments associated with educational attainment, Schmitz and Conley construct a polygenic score (PGS) for the Vietnam-era cohort in the Health and Retirement Study (HRS) that aggregates thousands of individual loci across the human genome, weighted by effect sizes derived from a recent genome-wide association study (GWAS) for years of education. These findings suggest veterans with below average PGSs for educational attainment completed fewer years of schooling than comparable non-veterans with the same PGS. On the other hand, the researchers do not find any difference in the educational attainment of veterans and non-veterans with above average PGSs. Results show that public policies and exogenous environments may induce heterogeneous treatment effects by genetic disposition.

Thomas Ahn, University of Kentucky; Peter Arcidiacono, Duke University and NBER; and Amy Hopson and James R. Thomas, Duke University

Equilibrium Grade Inflation with Implications for Female Interest in STEM Majors

Ahn, Arcidiacono, Hopson, and Thomas estimate an equilibrium model of grading policies where professors set both an intercept and a returns to studying and ability. Professors value enrollment, learning, and student study time and set their policies taking into the account the policies of the other professors. Students respond to grading policies in their selection of courses and how much to study conditional on enrolling. Men and women are allowed to have different preferences over course types, the benefits associated with higher grades, and the cost of exerting more effort. Two decompositions are performed. First, the researchers separate out how much of the differences in grading policies across fields is driven by differences in demand for courses in those fields and how much is due to differences in professor preferences across fields. Second, the researchers separate out how differences in female/male course taking across fields is driven by i) differences in cognitive skills, ii) differences in the valuation of grades, iii) differences in the cost of studying, and iv) differences in field preferences. The researchers then use the structural parameters to evaluate restrictions on grading policies. Restrictions on grading policies that equalize grade distributions across classes result in higher (lower) grades in science (nonscience) fields but more (less) work being required. As women are willing to study more than men, this restriction on grading policies results in more women pursuing the sciences and more men pursuing the nonsciences.

Graham Beattie, University of Pittsburgh; Jean-William P. Laliberté, University of Toronto; and Philip Oreopoulos, University of Toronto and NBER

Thrivers and Divers: Using Non-Academic Measures to Predict College Success and Failure (NBER Working Paper No. 22629)

Beattie, Laliberté, and Oreopoulos collect a comprehensive set of non-academic characteristics for a representative sample of incoming freshman to explore which measures best predict the wide variance in first-year college performance unaccounted for by past grades. The researchers focus their attention on student outliers. Students whose first-year college average is far below expectations (divers) have a high propensity for procrastination – they self-report cramming for exams and wait longer before starting assignments. They are also considerably less conscientious than their peers. Divers are more likely to express superficial goals, hoping to 'get rich' quickly. In contrast, students who exceed expectations (thrivers) express more philanthropic goals, are purpose-driven, and are willing to study more hours per week to obtain the higher GPA they expect. A simple seven-variable average of these key non-academic variables does well in predicting college achievement relative to adding more variables or letting a machine-algorithm choose. These results, descriptive in nature, warrant further research on the importance of non-linearities for the design and targeting of successful interventions in higher-education.

Rob Garlick, Duke University

The Effects of Nationwide Tuition Fee Elimination on Education Outcomes

This paper examines effects on education outcomes of nationwide primary and secondary school fee eliminations in South Africa. This policy shifted education financing from a mixed user fee and government transfer system to a pure transfer system. This mirrors policy debates in developed and developing countries about the optimal mix of school fees, (subsidized) loans, and transfers to finance primary, secondary, and tertiary education. Garlick finds that fee elimination has a small positive effect on enrollment, a small negative effect on secondary school graduation, and near-zero effects on grade progression, per-student school resources, and the socio-economic profile of the enrolled students. These results are robust to accounting for school-level selection into fee elimination, differential time trends between fee-eliminating and fee-charging schools, and student transfers between fee-charging and fee-eliminating schools. The enrollment effects imply a price elasticity between -0.03 and 0. This price insensitive demand does not appear to be driven by ceiling effects on enrollment, capacity constraints in schools, or measurement error in administrative data. Garlick argues that the pattern of results may reflect low valuation of additional years of education by youths living near fee-eliminating schools, potentially due to a weak relationship between enrollment and subsequent attainment. These results show that demand-side subsidies may have limited ability to increase education participation when quality is low. They also highlight that fee elimination, and other demand-side subsidies, can be very expensive relative to the effects on education enrollment when demand is this price inelastic.

Ben M. Marx, University of Illinois, and Lesley J. Turner, University of Maryland and NBER

Student Loan Nudges: Experimental Evidence on Borrowing and Educational Attainment

Marx and Turner experimentally test the impact of student loan "nudges" on community college students' borrowing decisions and subsequent educational attainment. The researchers find that students are biased towards borrowing the amount listed in their financial aid award letters, even though this amount does not affect students' choice sets. Students randomly assigned to receive a nonzero loan offer were 40 percent more likely to borrow than those who received a $0 loan offer. Neither fall nor spring enrollment was affected by loan offers, but students induced to borrow by a nonzero offer earned significantly more credits and higher GPAs. An additional $1,000 in loans led to 0.9 additional credits earned and a 0.16 GPA increase in the first year. Given that nearly one quarter of U.S. college students are offered $0 in loan aid, these results indicate the potential to achieve large gains in educational attainment by reforming the choice architecture around borrowing.

Katherine Michelmore, Cornell University, and Susan Dynarski, University of Michigan and NBER

The Gap within the Gap: Using Longitudinal Data to Understand Income Differences in Student Achievement (NBER Working Paper No. 22474)

Gaps in educational achievement between high- and low-income children are growing. Administrative datasets maintained by states and districts lack information about income but do indicate whether a student is eligible for subsidized school meals. Michelmore and Dynarski leverage the longitudinal structure of these datasets to develop a new measure of persistent economic disadvantage. Half of 8th graders in Michigan are eligible for a subsidized meal, but just 14 percent have been eligible for subsidized meals in every grade since kindergarten. These children score 0.94 standard deviations below those never eligible for subsidies and 0.23 below those occasionally eligible. There is a negative, linear relationship between grades spent in economic disadvantage and 8th grade test scores. This is not an exposure effect: the relationship is almost identical in 3rd grade, before children have been differentially exposed to five more years of economic disadvantage. Survey data show that the number of years that a child will spend eligible for subsidized lunch is negatively correlated with her current household income. Years eligible for subsidized meals can therefore be used as a reasonable proxy for income. The researchers' proposed measure can be used in evaluations to estimate heterogeneous effects, to improve value-added calculations, and to better target resources.

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