Wednesday, January 04, 2012

The utility of higher education is greatly overestimated

To translate the article below: Much of the economic benefit attributed to getting more education is in fact the result of a higher IQ. Higher IQ people tend to stay in the education system for longer but would do well even if they didn't

There are two conceptually distinct problems with standard estimates of the return to education (see here, here, and here for more).

Problem #1: Ability bias. People with traits the labor market values (intelligence, work ethic, conformity, etc.) tend to get more education. Since employers have some ability to detect these valued traits, people with more education would have earned above-average incomes even if their education were only average. Punchline: Standard estimates overstate the effect of education on worker productivity and income.

Problem #2: Signaling. People with traits the labor market values (intelligence, work ethic, conformity, etc.) tend to get more education. Since employers have imperfect ability to detect these valued traits, people with more education earn above-average incomes even if they personally lack these valued traits. Punchline: Standard estimates overstate the effect of education on worker productivity, but not the effect on income.

Neither of these stories enjoys much support from labor economists. They usually just ignore the signaling model - but when they're being careful they'll off-handedly admit that "Standard empirical tests can't distinguish between the human capital and signaling hypotheses." If you mention ability bias, however, labor economists will quickly point you to a massive literature that supposedly debunks it.

But if you pay close attention, there's a bizarre omission. Despite their mighty debunking efforts, labor economists almost never test for ability bias in the most obvious way: Measure ability, then re-estimate the return to education after controlling for measured ability. For example, you could measure IQ, then estimate the return to education after controlling for IQ.

When I ask labor economists about their omission, they have a puzzling response: "IQ is a very incomplete measure of ability." True enough. But the right lesson to draw is that controlling for IQ provides a lower bound for the severity of ability bias. After all, if the estimated return to education falls sharply after controlling for just one measure of ability, imagine how much it might fall after controlling for measures of all ability.

What happens to the return to education after controlling for IQ? I've done the statistics myself on the NLSY, and found that the estimated return to education falls by about 40%. I've talked to several other economists of widely varying political persuasions who reached very similar results. Only yesterday, though, did I discover an excellent publication that replicates this 40% figure - and shows it to be extremely robust: McKinley Blackburn and David Neumark's "Are OLS Estimates of the Return to Education Biased Downward? Another Look" (Review of Economics and Statistics, 1995). Their conclusion:
Thus, in our NLSY data, OLS estimation of the standard log wage equation, including test scores, appears to provide an appropriate estimate of the return to schooling. Such estimates indicate an upward bias of roughly 40% in the usual OLS estimate of the return to schooling (that omits proxies for ability). In contrast to evidence from other recent research using different statistical experiments to purge schooling of its correlation with the wage equation error, our results show that one can address the issues of omitted-ability bias, measurement error, and endogeneity, and still conclude that OLS estimation omitting ability measures overstates the economic return to schooling.

Call me cynical, but I'm confident that if Blackburn and Neumark's work had come out the other way, defenders of education would loudly include it on their list of reasons to ignore ability bias. Indeed, I wonder if their list would have grown half as long if the obvious test undermined education skepticism instead of supporting it.

To repeat: The straightforward way to test for ability bias is to measure ability, then control for it. If this approach failed to reveal ability bias, it would be reasonable to dismiss it. In practice, though, the straightforward test finds ability bias to be not merely real, but large. I'm not going to let anyone forget it. Expect me to invoke Blackburn-Neumark on a regular basis from now on.

SOURCE (See the original for links)

Prestigious, Top-Tier University to Offer ‘Occupy 101’‏ course

Columbia University is offering a new course on Occupy Wall Street next semester, reports the New York Post. Dr. Hannah Appel, who claims to have spent several nights camped out in Zuccotti Park, will be teaching a course formally titled “Occupy the Field: Global Finance, Inequality, Social Movement.”

On her blog, Appel defends OWS, arguing that “it is important to push back against the rhetoric of ‘disorganization’ or ‘a movement without a message’ coming from left, right and center.” This is how the course will be set up (according to the syllabus):

* Up to 30 students will be expected to get involved in ongoing OWS projects outside the classroom

* It will be divided between seminars and “fieldwork”

* Upperclassmen and grad students will be sent into the field for full course credit (which prompted the Post to ask “Does getting pepper-sprayed count as extra credit?”)

Addressing the safety risks of sending students out to perform “fieldwork,” Appel writes, “I can say with absolute certainty that there is no foreseeable risk in teaching this as a field-base class.”

“…absolute certainty…”

While some would argue that her obvious support for the OWS movement will influence the overarching message of the course, and “keep her from being an objective teacher,” Appel disagrees.

“Inevitably, my experience will color the way I teach, but I feel equipped to teach objectively,” Appel told The Post. “It’s best to be critical of the things we hold most sacred.”

The class will been broken up into three sections. The first portion of the course is titled “Occupation, Direct Action & Other Tactics.” The second portion is called “On Revolution.” The third and final portion of the course is called “The Alter Globalization Movement and the Question of Anarchy.”

The Blaze has addressed the issue of academia engaging OWS before, but perhaps it bears repeating: if University professors want to have an honest and open discussion on “income inequality,” revolution, anarchy, and total social upheaval, perhaps it would behoove them to review the following figures—you know, for “objectivity’s” sake:

Consider the following:

Harvard Professor Average Salary: $193,800
Columbia Professor Average Salary: $191,400
University of Chicago Professor Average Salary: $190,400
Stanford University Professor Average Salary: $188,400
Princeton University Average Salary: $186,000

Now compare these numbers:

U.S. Marine 20+ Years Median Salary: $76,200
U.S. Marine 10-19 Years Median Salary: $53,100
U.S. Marine 5-9 Years Median Salary: $40,000
U.S. Marine Less Than 5 Years Median Salary: $28,700

Given these sets of facts, would it be unfair to demand Miss Appel offer a seminar titled “Occupy the Quad”?

As written earlier on The Blaze:
To be fair, the difference in salary between a tenured Harvard professor and a U.S. Marine may not be as extreme as, say, the difference between a Goldman Sachs executive and a New York City police officer.

However, as far as one can tell, the Occupy movement isn’t just about a difference in numbers. It’s about a specific socio-political theory that says, “It’s not fair that so few should have so much.”

When the Occupiers say that we should protest Goldman Sachs because hedge funders are paid more than the police, wouldn’t that same logic apply to [Columbia] because its professors are paid more than the U.S. Marines?

It would seem that both of these examples are flawed in their logic because, at their root, they are dependent an arbitrary and personal understanding of what “too much” is.

Who gets to decide that? …unless someone produces a fact-based proof for what “equal” looks like, then the entire idea of “income inequality” will continue to go in circles…


Unstable homes hit British High School grades: How family support is vital to success at school

Ever since the prewar Terman & Oden studies we have known that high IQ people are less prone to divorce so what we are seeing here could just be an IQ effect

Young people who grow up in an unstable household are twice as likely to leave school with no good GCSEs, according to the Prince’s Trust.

Those without a good education are also more likely to have been read fewer bedtime stories and to have had less support at home than their more successful peers, its research shows.

It also suggests the parents of those aged 16-25 with no A* to C grade GCSEs are less likely to help with their child’s homework. The survey found stability at home was linked to success in later life, according to the charity’s fourth annual Youth Happiness Index.

Nearly half (45 per cent) of all high-achieving 16- to 25-year-olds said someone at home always helped them with their schoolwork, as opposed to 38 per cent of those with no qualifications.

Those with no good GCSEs were less than half as likely to have someone read to them as the average young person, according to the YouGov survey.

The lack of routine also impacted upon their mental health, with the number of those with no qualifications three times more likely to be depressed than their well-educated peers. One in three of those with lower qualifications ‘always’ or ‘often’ felt rejected, compared with one in five overall.

Those with no good GCSEs were also more likely to have irregular mealtimes than those with more than five GCSEs at grades A* to C.

Martina Milburn, chief executive of the Prince’s Trust, said: ‘Without the right support, directionless teenagers can become lost young adults – unconfident, under-qualified and unemployed.’


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