Economics of Education (eBook)

Front Cover 1
Economics of Education 4
Copyright Page 5
Preface 6
Contributors 8
Contents 12
I. OVERVIEW 14
Theoretical Concepts in the Economics of Education 16
Economics Defined 16
Human Capital 17
Markets and Market Failure 17
Education Production 19
Concluding Thoughts 20
Bibliography 20
Further Reading 20
Empirical Research Methods in the Economics of Education 22
Common Research Terms 22
Methods for Answering Causal Questions 22
Statistical Controls for Observed Variables 22
Regression analysis 23
Propensity score matching 23
Randomized Assignment 24
Discontinuity Assignment 24
Instrumental Variables 25
Difference-in-Differences 25
Combining Methods to Improve Causal Inference 26
Conclusions 26
Bibliography 27
Further Reading 27
Data in the Economics of Education 28
Overview 28
National Data Systems 28
CCD and SASS Databases 28
NAEP Assessment Data 29
National Longitudinal Studies: NLS-72, HS and B, NELS: 88, and ELS: 2002 29
Crime and Safety Surveys 30
Accessibility 30
State and School District Databases 31
The National Center for Analysis of Longitudinal Data in Education Research 32
Florida 32
Texas 32
New York 32
North Carolina 33
Missouri 33
Washington 33
Other State and District Administrative Databases 33
Chicago 33
Arizona 33
California 33
Other states 34
International Data Systems 34
Conclusions 34
Bibliography 34
Further Reading 35
II. THE PRIVATE AND SOCIAL RETURNS TO HUMAN CAPITAL INVESTMENTS 38
Human Capital 40
Private Returns to Education 40
Theoretical Issues and Modeling 40
Empirical Estimates and Methodology 41
Topics in Empirical Estimation 42
Primary and secondary education 42
Post-secondary education 42
On-the-job training and work experience 43
Nonmonetary Returns to Education 43
Social Returns to Education 43
Conclusion 44
Bibliography 44
Further Reading 45
Signaling in the Labor Market 46
Empirical Evidence 47
Conclusion 49
Bibliography 49
Further Reading 49
Returns to Education in Developed Countries 50
Introduction 50
Estimating Returns to Education via Schooling Equations 50
Basic Schooling Equation 51
Hourly Wages versus Measures That Include Hours of Work 51
Measurement Error in Schooling 51
Ability Bias, Omitted Variables, and Selection Bias 52
Include proxy measures of ability 52
Twin studies 52
Natural experiments based mainly on features of the education system 52
Heterogeneous Returns 53
Annual Returns, Signaling, and Sheepskin Effects 54
Trends and Some International Evidence 54
Summary 54
Bibliography 55
Further Reading 56
Returns to Education in Developing Countries 57
Earnings Differentials by Education 57
Returns to Education 57
Causality 61
Cognitive Ability 62
Conclusions and Policy Considerations 62
Bibliography 63
Further Reading 64
School Quality and Earnings 65
Estimation Methods Typically Used 65
Methodological Weaknesses 66
Summary of Findings 66
Testing for a Significant Relation between School Resources and Earnings 66
Results for US women and workers in the United Kingdom 67
Estimating the Size of the Relation Between School Resources and Earnings 68
Explanations for Variations in Results 68
Age Dependence 70
Structural Changes? 70
Specific Problems Potentially Afflicting State-Level and School-Level Studies 70
Issues That Require Further Research 71
Bibliography 71
Further Reading 72
Relevant Websites 72
Education and Economic Growth 73
Initial Evidence on the Quality of Education and Economic Growth 74
Recent Evidence on the Importance of Cognitive Skills for Economic Growth 76
The Interaction of Educational Quality with Economic Institutions 78
Simulating the Impact of Educational Reform on Economic Growth 78
Summary 79
Bibliography 80
Further Reading 80
Relevant Website 80
The External Benefits of Education 81
Distinguishing Private Market, Private Nonmarket, and Social Benefits 81
The Market Benefits of Education 81
The Private Nonmarket Benefits of Education 81
The External Social Benefits of Education 82
The Indirect Effects from Education 83
Why Are Indirect Effects Externalities? 83
The Evidence: Identifying and Valuing the External Social Benefits 83
The Value of the Direct Nonmarket Public Benefits of Education 85
Evidence Concerning Specific External Social Benefits 86
Democratization 86
Human rights 87
Political stability 87
Life expectancy 87
Reduced inequality and lower poverty 88
Lower crime rates 88
Lower public health, welfare, and prison costs 88
Increased tax receipts 88
Environmental benefits 88
Happiness and social capital 89
Dissemination of technology 89
The Value of External Indirect Effects 89
The Total Value of Education's External Benefits 89
Studies of Aggregate Externalities 90
Implications 91
Bibliography 91
Further Reading 92
Relevant Website 92
Education and Health 93
Overview of Causal Relationships 93
Health, Education, and Poverty 94
Stress 94
Social Standing 96
Social Deprivation 96
Behavioral Risk Factors 97
Genetic Risk Factors 98
Health Insurance 99
Enhanced Cognitive Ability 100
Conclusions 100
Bibliography 100
Further Reading 101
Relevant Website 101
Education and Civic Engagement 102
Comparisons of Public and Private Schools 103
Summary and Future Directions 104
Bibliography 105
Further Reading 105
Education and Crime 106
Introduction 106
The Economics of Education and Crime 106
The Effects of Education on Subsequent Crime Among Adults 106
Contemporaneous Crime and Education Decisions Among Youth 107
Empirical Evidence on Crime and Education 107
The Effects of Education on Crime 107
The Effects of Arrest and Incarceration on Education 110
Education and Training in Prison 110
Conclusions 111
Bibliography 111
Further Reading 111
Relevant Website 111
Education and Inequality* 112
Introduction 112
Inequalities in Educational Outcomes 112
Inequalities by Social Background 112
Inequalities by Race, Ethnicity, and Immigrant Status 113
Inequalities by Gender 114
Education and Economic Outcomes 115
Causality 116
Wider Benefits of Education 118
Changes over Time 118
Conclusions 120
Bibliography 120
Further Reading 121
Relevant Website 121
Race Earnings Differentials 122
Race and Ethnic Earnings Differences in the United States 123
A Model for Explaining Earnings Differences 124
Explaining Earnings Differences with Cross-Section Data 125
Earnings Differences for Minority Women 126
Do Ability/Educational Quality Differences Explain Race/Ethnic Earnings Differences? 127
What Are the Sources of the Black/White Test-Score Gap? 128
Explaining Changes in Earnings Differences over Time 129
Comparing Results for Brazil and Israel 130
Bibliography 131
The Economics of High School Dropouts 132
Who Drops Out of High School? 132
What Are the Consequences? 133
Why Do Students Drop Out? 133
Individual Factors 134
Institutional Factors 134
Families 134
Schools 134
Community and peers 135
What Can Be Done? 135
Programmatic Approaches 136
Systemic Solutions 136
Conclusions 136
Bibliography 137
Further Reading 137
Relevant Website 137
III. THE PRODUCTION, COSTS AND FINANCING OF EDUCATION 138
Education Production Functions: Concepts 140
Introduction 140
Production Function Models and Assumptions 140
Basic Assumptions 141
Additional Common Assumptions 141
EPFs and Accountability 143
Evidence on the Assumptions of the EPF 143
Bibliography 144
Relevant Website 144
Education Production Functions: Evidence from Developed Countries 145
Overview 145
Measured School Inputs 146
Study Quality 146
Benefits and Costs 147
Do Teachers and Schools Matter? 147
Some Conclusions and Implications 148
Bibliography 148
Further Reading 148
Education Production Functions: Evidence from Developing Countries 150
Introduction 150
The Education Production Function 150
Estimation of Production Functions 151
Omitted Variable Bias 152
Selection and Attrition Bias 152
Endogenous Program Placement Bias 152
Measurement Error Bias 152
Methods to Reduce or Remove Bias 153
Evidence from Developing Countries 153
Education in Developing Countries 153
Demand Interventions 155
Supply Policies 158
Conclusions and Suggestions for Future Research 159
Acknowledgment 159
Bibliography 159
Further Reading 160
Family Environment in the Production of Schooling 161
Health Influences on Achievement 163
Housing and Student Mobility 165
Income and Wealth Differences that Influence Achievement 165
Conclusion 166
Bibliography 166
Relevant Website 168
Parental Socioeconomic Status, Child Health, and Human Capital 169
Introduction 169
Does Parental Socioeconomic Status Affect Child Health? 169
External Benefits of Parental SES 169
Evidence 170
Correlation 170
Causation 170
Does Child Health Affect Future Outcomes? 171
Possible Channels 171
Evidence 171
Conditions in utero 172
Birth weight 172
Nutrition 172
Mental health 173
Asthma 173
Acute illnesses 173
Environmental toxins 173
Can Health Account for Gaps in Children's Educational Outcomes? 174
Bibliography 174
Further Reading 175
Relevant Website 175
Neighborhoods and Peers in the Production of Schooling 176
Evidence on Neighborhoods 177
Evidence on Schoolmates and Classmates 180
Discussion 181
Bibliography 182
Further Reading 182
Desegregation, Academic Achievement, and Earnings 183
Supreme Court Decisions and Desegregation Methods 183
Trends in School Enrolment Patterns: 1968-2000 183
Desegregation and White Enrolment Decline 185
Desegregation Program Effects on Academic and Economic Outcomes 187
Methodological Issues 187
Summary of Results 188
Bibliography 189
Teacher Quality in Education Production 191
What Is Teacher Quality? 191
Teacher Experience 192
Teacher Certification 192
Degree Level and Subject-Matter Preparation 193
Teacher Ability 193
Conclusion 194
Bibliography 194
Further Reading 195
The Economics of Class Size 196
Why Class Size Might Matter 196
Empirical Approaches to Studying the Impact of Class Size 196
Nonexperimental Research 197
Experimental Research 197
Checks for Randomization 198
Achievement Results 199
Additional Caveats 200
Quasi-Experimental Research 201
Policy-Induced Variation 202
Discussion 202
Bibliography 202
Further Reading 203
The Economics of Early Childhood Interventions 204
Cost-Benefit Analysis and Cost-Effectiveness Analysis 210
Economic Evaluation of Education 210
Methodology 210
Measuring Costs 211
Benefits and Effects 212
Examples of Applications 212
Cost-benefit analysis 212
Further application of CBA 212
Cost-effectiveness analysis 213
Further application of CEA 213
Bibliography 213
Further Reading 214
Economic Approaches to Adequacy 215
Measuring the Costs of Adequacy 215
Cost-Function Estimation 217
Variables and Functional Form 217
Efficiency 217
Estimation Methods 218
Data Requirements 218
Cost-Function Results 218
Bibliography 219
Further Reading 220
Economic Approaches to School Efficiency 221
Efficiency in an Education Context 221
Econometric Approaches 221
Data Envelopment Analysis 221
Stochastic Frontier Analysis 222
Corrected OLS 222
Specifications and Measurement 223
School Outputs 223
School Inputs 223
Environmental Factors 224
Findings Regarding School Efficiency 224
The Determinants of School Inefficiency 225
Conclusions 225
Bibliography 226
Further Reading 226
School Finance: An Overview 227
Introduction 227
School Finance in Context 227
Raising Revenue: Multiple and Evolving Roles 228
Distributing Resources: Multiple and Competing Goals 229
Mechanisms for Distributing Revenue across School Districts 229
Equity and Adequacy 230
Efficiency 231
Utilization of Resources: Current Policy Issues for School Finance 231
Teacher Compensation 231
Special Education 231
Expanding the Scope of Education 232
Bibliography 232
Further Reading 233
School Finance Reform 234
Introduction 234
Effects of School Finance Reforms on Spending 234
Impact of Reforms on the Distribution and Level of Spending 234
How Are Additional Dollars Spent? 235
Impact of School Finance Reform on Student Performance 235
Other Effects of School Finance Reforms 236
Spending on Other Public Services after Finance Reforms 236
Finance Reforms and Community Composition 236
Housing Prices and Finance Reforms 237
Do Finance Reforms Lead to Shifts of Enrollment to Private Schools? 237
Finance Reforms and Private Contributions to Public Schools 237
Summary 238
Bibliography 238
Further Reading 238
The Economics of Tuition and Fees in American Higher Education 240
Introduction 240
Tuition Keeps Rising in Private Higher Education 241
Tuition Keeps Rising at Public Institutions 243
Graduate and Professional Program Tuition and Fees 243
Concluding Remarks 244
Bibliography 244
Further Reading 244
IV. TEACHERS AND TEACHER LABOR MARKETS 246
Teacher Labor Markets: An Overview 248
Teacher Labor Markets 249
Methodological Issues 251
Looking Ahead 253
Bibliography 253
Further Reading 255
Relevant Website 255
Teachers in Developing Countries 256
Teacher Labor Markets in Developing Countries: Stylized Facts 256
Teacher Salary Levels: Mixed Evidence on Adequacy 256
Teacher Salary Characteristics: High Rigidity and Fiscal Cost 257
Poor Working Conditions 257
Teacher Entry and Assignment: Challenges for Quality and Equity 257
Inadequate Teacher Management 258
Teacher Policies and Their Effects 259
Teacher Pay 259
School-Based Management 260
Alternatives to Hiring Regular Teachers 261
Teacher Training 261
Some Lessons from Research on Teacher Policy in Developing Countries 261
Bibliography 262
Further Reading 263
Relevant Website 263
Teacher Supply 264
The Labor Market for Teachers 264
The Demand for Teachers 265
The Supply of Teachers 267
Teachers' Pay 271
Summary 271
Bibliography 272
Further Reading 272
Economic Approaches to Teacher Recruitment and Retention 273
The Supply of Teachers 273
Wages 273
Working Conditions 273
Psychic Benefits and Costs 274
School Location 274
Barriers to Entry 275
The Demand for Teachers 275
Student Enrolment and Teacher Retirement 275
Reduction in Student-to-Teacher Ratios 275
Hiring Processes 275
Institutional Constraints 276
Recruitment and Retention Policies to Date 276
Partnerships Between Districts and Local Colleges 276
Monetary Incentives 276
Changes in Entry Requirements 277
Teacher Induction and Mentoring 277
Performance-Based Pay 277
Career Differentiation Through Ladders 278
Improving Hiring Practices 278
Reform of Due Process 278
Conclusion 279
Bibliography 279
Further Reading 280
Compensating Differentials in Teacher Labor Markets 281
Background 281
Early Efforts 281
Purchasing Power of the Educational Dollar and Hedonic Wage Model 282
Empirical Estimates of Compensating Differentials across the US 283
Correlations over Time 283
Analysis of Differences between Public and Private Schools 283
Problems with the Hedonic Wage Model 284
Regional Factors and the Comparable Wage Index 284
Measuring Teacher Quality 285
Interpretation of Cost Factors 285
Teacher Quality and Fixed-Effects Models 285
Flexible Wages and the Nature of the Labor Market 285
Location as a Factor 286
Concluding Remarks 286
Bibliography 287
Further Reading 287
Relevant Website 288
Teacher Incentives 289
Teacher Incentives 289
Background on Incentive Programs 289
Advantages of Incentive Programs 290
Individual Incentives 290
Efficiency and productivity 290
Recruitment and retention of qualified teachers 291
Group Incentives 291
Efficiency and productivity 291
Summary of Key Findings 292
Disadvantages and Criticisms 292
Adverse and Unintended Consequences of Teacher Incentive Programs 294
Conclusions 294
Bibliography 295
Further Reading 296
The Economics of Teachers Unions in the United States 297
Introduction 297
A Brief History of Teachers' Unions in the United States 297
An Overview of Laws Regulating Teachers' Unions in the United States 298
Theoretical Ways in Which Teachers' Unions May Enhance or Detract from Education 298
Ways in Which Unions May Positively Impact School Districts 298
Unions improve teacher quality by increasing teachers' well-being 298
Unions allow teachers to focus on teaching 299
Unions improve information flows 299
Unions increase efficiency of resource use 299
Unions stabilize school districts 299
Unions correct a market failure in the education marketplace 299
Ways in Which Unions May Negatively Impact School Districts 299
Unions decrease efficient allocation of resources 299
Unions disrupt incentives for teacher performance 299
Unions reduce communities' social welfare 299
Unions drive wedges between teachers and districts 299
Unions threaten democratic processes 300
The Impact of Unions on District Outcomes: Evidence from Empirical Literature 300
The Relationship between Teachers' Unions and Teachers' Pay 300
The Relationship between Teachers' Unions and Student-Teacher Ratios 300
The Relationship between Teachers' Unions and Other Working Conditions 300
The Relationship between Teachers' Unions and School District Spending 301
The Relationship between Teachers' Unions and Student Achievement 301
Summary 301
Bibliography 301
Further Reading 302
Relevant Website 302
Teacher Training and Preparation in the United States 303
Introduction 303
Current Licensing Methods 304
Research on Teacher Training and Licensing 304
Conclusion 307
Bibliography 307
Further Reading 308
Relevant Website 308
V. EDUCATION MARKETS, CHOICE AND INCENTIVES 310
The Economic Role of the State in Education 312
Constructing Education Systems 312
Economics and the State's Role 313
Is Education a Public Good? 313
Market Failure in the Market for Education 313
Externalities 313
Information asymmetry 314
Uncertainty and risk aversion 314
Economies of scale 315
Equity and Equal Opportunity 315
Critique of State Provision 315
Public Choice and Government Failure 315
Inefficiency in production 315
Inequity in opportunities and outcomes 316
Standardization and enforced mediocrity 316
Rent-seeking and corruption 316
A Role for the State? 316
Education and the Shrinking State 317
Bibliography 317
Educational Privatization 319
Privatization of Different School Types 319
Privatization of School Services 320
Financing Education and Privatization 320
Evaluating Educational Privatization 321
Evaluating Educational Privatization Approaches 322
Tools of Educational Privatization 323
Summary 323
Bibliography 323
Tiebout Sorting and Competition 324
Tiebout Sorting and the Rationing of School Inputs 325
Tiebout Competition to Enhance Productive Efficiency 327
A Partial Divorce between Competition and Tiebout 327
Conclusion 328
Bibliography 328
Further Reading 329
The Economics of Catholic Schools 330
Introduction 330
Overview 330
History and Enrolment 330
Teachers 330
Students 330
Location 331
Tuition and Costs 331
Market Served 331
School Practices 331
Vouchers 331
Catholic Schools in Other Countries 332
Demand 332
Effects 333
Academic Achievement and Educational Attainment 333
Bad Behavior 334
Civic Participation and Altruism 334
Economic Effects 334
Other Effects 334
The Effect of Catholic School Attendance in Other Countries 334
Conclusions 334
Bibliography 335
Further Reading 335
Relevant Website 335
Competition and Student Performance 336
Concepts and Empirical Background 336
Competition Associated with the Presence of Private Schools 338
Competition Among Public Schools 338
Lessons from Research Using Non-US Data 339
Summary 340
Bibliography 340
Further Reading 341
The Economics of Charter Schools 342
Introduction 342
Policy Questions 342
What Types of Students Do Charter Schools Serve? 343
Are Charter and Traditional Schools Receiving Comparable Funding? 343
How Do Charter Schools Affect the Performance of Charter Students? 344
Is Charter School Competition Improving the Performance of Traditional Public Schools? 345
Conclusions 346
Bibliography 347
Further Reading 348
Relevant Website 348
The Economics of Parental Choice 349
The Basic Economics of Parental Choice 349
Choice among Alternative Types of Schools 350
Empirical Evidence on What Parents Care about 350
School Demographics 350
Academic Performance 351
Location 352
School Atmosphere: Safety, Discipline, Values, Class Size, and Friends 352
Does Parental Choice Vary by Income and Ability of Parents? Or Is There Evidence of Sorting by Income and Ability? 353
The Role of Information 353
Conclusions 354
Bibliography 354
Further Reading 355
Relevant Website 355
The Efficacy of Educational Vouchers** 356
Introduction 356
Structure of Voucher Plans 356
Domestic Voucher Programs 357
Publicly Funded Programs 357
The Milwaukee voucher program 357
The Cleveland voucher program 357
Other publicly funded voucher programs 359
Domestic, Privately Funded Programs 359
International Voucher Programs 360
Colombia PACES Program 360
Chile 360
Summary and Conclusion 361
Bibliography 362
Further Reading 363
Relevant Website 363
The Economics of School Accountability 364
The Rationale for School-Based Accountability 364
Designing School Accountability Systems 365
The Evidence on Student Achievement 366
Evidence on Unintended Consequences 367
Bibliography 368
Further Reading 369
Student Incentives 370
Conceptual and Empirical Issues 370
Incentives to Increase Student Effort and Performance 370
Standards-Based Accountability 370
Evidence 371
Student Financial Incentives 372
Evidence 372
Teacher Financial Incentives 372
Evidence 373
Conclusion 373
Bibliography 373
Further Reading 374
Subject Index 376