Economics CIBC Human Capital and Productivity Project Working Paper Series

Technological Change in the Production of Human Capital: Implications for Human Capital Stocks, Wages and Skill Differentials

Audra J, Bowlus et al. — Wed, 30 Sep 2009 16:34:53 PDT

Human Capital Specificity: Direct and Indirect Evidence from Canadian and US Panels and Displaced Worker Surveys

Maxim Poletaev et al. — Wed, 30 Sep 2009 16:34:22 PDT

Recent papers by Neal (1995) and Parent (2000), using different methods, provided evidence in support of the hypothesis that previously estimated firm tenure effects are, in fact, capturing industry specific human capital investments due to a correlation between firm and industry tenure. This paper uses both methods applied to both US and Canadian data sets to provide evidence in support of an alternative hypothesis that human capital is, for the most part, not narrowly specific to firm or industry. An analysis using either the indirect method of Neal, or the direct approach of Parent, provides evidence against the importance of industry specific capital and in favor of broad skill based specificity.

What Is the Value Added by Caseworkers?

Michael Lechner et al. — Wed, 30 Sep 2009 16:34:21 PDT

We investigate the allocation of unemployed individuals to different subprograms within Swiss active labour market policy by the caseworkers at local employment offices in Switzerland in 1998. We are particularly interested in whether the caseworkers allocate the unemployed to services in ways that will maximize the program-induced changes in their employment probabilities. Our econometric analysis uses unusually informative data originating from administrative unemployment and social security records. For the estimation we apply matching estimators adapted to the case of multiple programmes. The number of observations in this database is sufficiently high to allow for this nonparametric analysis to be conducted in narrowly defined subgroups. Our results indicate that Swiss caseworkers do not do a very good job of allocating their unemployed clients to the subprograms so as to maximize their subsequent employment prospects. Our findings suggest one of three possible conclusions. First, case- workers may be trying to solve the problem of allocating the unemployed to maximize their subsequent employment, but may lack the skills or knowledge to do this. Second, caseworkers may have a goal other than efficiency, such as allocating the most expensive services to the least well-off clients, that is not explicit in the law regulating active labour market policies. Third, the distortions of the local decision process could be due to federal authorities imposing strict minimum participation requirements for the various programs at the regional level.

How Robust Is the Evidence on the Effects of College Quality? Evidence from Matching

Dan A. Black et al. — Wed, 30 Sep 2009 16:34:20 PDT

Equilibrium Policy Experiments and the Evaluation of Social Programs

Jeremy Lise et al. — Wed, 30 Sep 2009 16:34:20 PDT

This paper makes three contributions to the literature on program evaluation. First, we construct a model that is well-suited to conduct equilibrium policy experiments and we illustrate eﬀectiveness of general equilibrium models as tools for the evaluation of social programs. Second, we demonstrate the usefulness of social experiments as tools to evaluate models. In this respect, our paper serves as the equilibrium analogue to LaLonde (1986) and others, where experiments are used as a benchmark against which to assess the performance of non-experimental estimators. Third, we apply our model to the study of the Canadian Self-Suﬃciency Pro ject (SSP), an experiment providing generous ﬁnancial incentives to exit welfare and obtain stable employment. The model incorporates the main features of many unemployment insurance and welfare programs, including eligibility criteria and time-limited beneﬁts, as well as the wage determination process. We ﬁrst calibrate our model to data on the control group and simulate the experiment within the model. The model matches the welfare-to-work transition of the treatment group, providing support for our model in this context. We then undertake an equilibrium evaluation of the SSP. Our results highlight important feedback eﬀects of the policy change, including displacement of unemployed individuals, lower wages for workers receiving supplement payments and higher wages for those not directly treated by the program. The results also highlight the incentives of individuals to delay exit from welfare in order to qualify for the program. Together, the feedback eﬀects change the cost-beneﬁt conclusions implied by the partial equilibrium experimental evaluation substantially.

The Determinants of Participation in a Social Program: Evidence from a Prototypical Job Training Program

James J. Heckman et al. — Wed, 30 Sep 2009 16:34:19 PDT

This paper decomposes the participation process of a prototypical program into eligibility, awareness, application, acceptance and enrollment. With this decomposition, we determine the sources of unequal participation for different groups, and demonstrate that variables often have very different effects at different stages in the participation process. Our analysis shows that personal choices substantially affect participation and that awareness of program eligibility is a major source of variation in participation.

Human Capital and Skill Specificity

Maxim Poletaev et al. — Wed, 30 Sep 2009 16:34:18 PDT

Two recent papers, Neal (1995) and Parent (2000) have presented evidence in favour of the importance of industry specific human capital. The authors argued that some or all of the previous evidence on firm specific capital may in fact have been spurious, due to a correlation between firm and industry specific capital. The evidence in Neal (1995) is an indirect method of detecting industry specific capital using the Displaced Worker Surveys. It is indirect because there is no measure of industry tenure. The method is based on a comparison of wage changes for industry switchers compared with industry stayers after displacement. In this paper we argue that rather than being specific to industry, human capital is specific to a small number of basic skills. Using the same methodology and data sources as Neal (1995) we find that when skill status is taken into account there is little evidence of industry specific human capital. The evidence instead is more consistent with basic skill specific human capital.

Does Matching Overcome Lalonde's Critique of Nonexperimental Estimators?

Jeffrey Smith et al. — Wed, 30 Sep 2009 16:34:18 PDT

This paper applies cross-sectional and longitudinal propensity score matching estimators to data from the National Supported Work (NSW) Demonstration that have been previously analyzed by LaLonde (1986) and Dehejia and Wahba (1999,2002). We ﬁnd that estimates of the impact of NSW based on propensity score matching are highly sensitive to both the set of variables included in the scores and the particular analysis sample used in the estimation. Among the estimators we study, the diﬀerence-in-diﬀerences matching estimator performs the best. We attribute its performance to the fact that it eliminates potential sources of temporally-invariant bias present in the NSW data, such as geographic mismatch between participants and non-participants and the use of a dependent variable measured in diﬀerent ways for the two groups. Our analysis demontrates that while propensity score matching is a potentially useful econometric tool, it does not represent a general solution to the evaluation problem.

The Long-term Effects of Graduating from High School During a Recession: Bad Luck or Forced Opportunity?

Audra J. Bowlus et al. — Wed, 30 Sep 2009 16:34:17 PDT

This paper examines whether local labor market conditions at the time of high school graduation have long-term e®ects on wages. We ¯nd that a higher unemploy- ment rate raises the probability of staying in school after ¯nishing high school of white males, but reduces that of black males. A higher unemployment rate is also found to have a negative and lasting impact on the wages of white males who directly enter the workforce after graduating from high school. The main impetus of these lower wages is a tendency to accumulate less experience over the same time horizon. Thus, for most individuals graduating during a recession represents bad luck. However, for some the forced opportunity of additional years of education results in higher earnings levels.

Working during School and Academic Performance

Todd R. Stinebrickner et al. — Wed, 30 Sep 2009 16:34:16 PDT

Time Use and College Outcomes

Todd R. Stinebrickner et al. — Wed, 30 Sep 2009 16:34:16 PDT

Peer Effects among Students from Disadvantaged Backgrounds

Todd R. Stinebrickner et al. — Wed, 30 Sep 2009 16:34:15 PDT

Understanding Educational Outcomes of Students from Low Income Families: Evidence from a Liberal Arts College with a Full Tuition Subsidy Program

Todd R. Stinebrickner et al. — Wed, 30 Sep 2009 16:34:15 PDT

Displaced Workers, Early Leavers, and Re-employment Wages

Audra Bowlus et al. — Wed, 30 Sep 2009 16:34:14 PDT

Human Capital, Productivity and Growth

Audra Bowlus et al. — Sun, 27 Sep 2009 13:30:38 PDT

In this paper new estimates of human capital prices and quantities, taking into account technological change in human capital production and endogenous education choice, are presented for both Canada and the United States. The implications of the estimates for the sources of growth are examined. The most striking result is that adjusting the labour input for quality increases reduces the contribution of MFP growth in standard of living growth to zero. The largest part of this quality increase is not due to composition changes but instead to technological change in human capital production. Since most attempts at adjusting the labour input for quality changes only deal with composition, they cannot capture a large part of the quality change. The results suggest that technological improvement in human capital production could be the major source of standard of living growth in the last few decades.

Race, Poverty, and Teacher Mobility

Benjamin Scafidi et al. — Sun, 27 Sep 2009 13:30:37 PDT

This paper provides new information about the interrelated issues of teacher turnover (both within and across school districts and inside and outside of teaching) and the importance of non- pecuniary school characteristics, such as race and poverty, using new administrative data on Georgia teachers and the elementary schools in which they teach. Simple descriptive statistics indicate that teachers are more likely to change schools if they begin their teaching careers in schools with lower student test scores, schools with lower income students, or schools that have higher proportions of minority students. A linear probability and a competing risks model of transitions out of first teaching jobs allow us to separate the importance of these highly correlated school characteristics. The estimates from the model imply that teachers are much more likely to exit schools with large proportions of minority students, and that the other univariate statistical relationships associated with student test scores and poverty rates are driven to a large extent by the correlations of these variables with the minority variable. Thus we find that, while the common notion that teachers are more likely to leave high poverty schools is correct, it occurs because teachers are more likely to leave a particular type of poor school - that which has a large proportion of minority students.

What Can Be Learned about Peer Effects Using College Roommates? Evidence from New Survey Data and Students from Disadvantaged Backgrounds

Todd R. Stinebrickner et al. — Sun, 27 Sep 2009 13:30:35 PDT

Previous papers which examine the importance of peer effects using exogenous variation in college roommates have found only very limited evidence that a student’s first year grade performance is influenced by the observable academic characteristics of his/her roommate. One possible explanation for this finding is that peer effects do not play a particularly important role in the higher education setting. However, another very plausible explanation for this finding is that peer effects are important in higher education but that these previous empirical efforts have simply not been “looking in the right place” to find the evidence of peer effects in this setting. Thus, while these papers have received considerable attention due to the general difficulty of finding credible exogenous variation in peer quality, they have difficulty answering the most fundamental question related to peer effects in this higher education - whether peer effects play an important role or not. This paper provides depth to the peer effects literature using unique new survey and administrative data.

Do Teachers Really Leave for Higher Paying Jobs in Alternative Occupations?

Benjamin Scafidi et al. — Sun, 27 Sep 2009 13:30:34 PDT

In this paper we examine a very common perception which plays a central role in much current educational policy debate - that the large majority of teacher attrition is driven by the allure of higher paying jobs in alternative occupations. Using unique data from the state of Georgia that are created by merging administrative data from the educational system with wage records from the Unemployment Insurance system, we find very strong evidence that this common perception is not correct.

Earnings Functions and Rates of Return

James J. Heckman et al. — Fri, 25 Sep 2009 17:54:25 PDT

The internal rate of return to schooling is a fundamental economic parameter that is often used to assess whether expenditure on education should be increased or decreased. This paper considers alternative approaches to estimating marginal internal rates of return for diﬀerent schooling levels. We implement a general nonparametric approach to estimate marginal internal rates of return that take into account tuition costs, income taxes and nonlinearities in the earnings-schooling-experience relationship. The returns obtained by the more general method diﬀer substantially from Mincer returns in levels and in their evolution over time. They indicate relatively larger returns to graduating from high school than from graduating from college, although both have been increasing over time.

The Changing Role of Family Income and Ability in Determining Educational Achievement

Philippe Belley et al. — Fri, 25 Sep 2009 17:54:25 PDT

This paper uses data from the 1979 and 1997 National Longitudinal Survey of Youth cohorts (NLSY79 and NLSY97) to estimate changes in the eﬀects of ability and family income on educa- tional attainment for youth in their late teens during the early 1980s and early 2000s. Cognitive ability plays an important role in determining educational outcomes for both NLSY cohorts, while family income plays little role in determining high school completion in either cohort. Most in- terestingly, we document a dramatic increase in the eﬀects of family income on college attendance (particularly among the least able) from the NLSY79 to the NLSY97. Family income has also become a much more important determinant of college ‘quality’ and hours/weeks worked during the academic year (the latter among the most able) in the NLSY97. Family income has little eﬀect on college delay in either sample.

To interpret our empirical ﬁndings on college attendance, we develop an educational choice model that incorporates both borrowing constraints and a ‘consumption’ value of schooling - two of the most commonly invoked explanations for a positive family income - schooling relationship. Without borrowing constraints, the model cannot explain the rising eﬀects of family income on college attendance in response to the sharply rising costs and returns to college experienced from the early 1980s to early 2000s: the incentives created by a ‘consumption’ value of schooling imply that income should have become less important over time (or even negatively related to attendance). Instead, the data are more broadly consistent with the hypothesis that more youth are borrowing constrained today than were in the early 1980s.