Class Notes: College readiness, disability insurance, and more

People walk on the esplanade of La Defense, in the financial and business district, west of Paris, France, October 6, 2017. REUTERS/Charles Platiau - RC1B9BB86D30
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This week in Class Notes:

Lack of college-readiness hinders human capital investment and may lead to growing income inequality

The college earnings premium has increased over the past decades and remains at a persistently high level. Why have college enrollment and attainment rates not increased at a similar pace? In their new paper, Kartik Athreya and Janice Eberly use a quantitative model and data on college enrollment and attainment to help solve this puzzle. Their key finding is that risk plays a central role in hindering human capital investment. Potential students are less responsive to an increase in the college premium if their chances of graduating from college after enrolling are low. The data show that students facing the lowest risk of dropping out are already enrolling in college; it’s the high-risk students that do not enroll. These students in particular are insensitive to the college premium as their expected value is dampened by the risk of dropping out. The model suggests that even if an increase in the college premium leads to an increase in enrollment, the increase in attainment will be significantly smaller. There are two long-term takeaways. First, college readiness is an important barrier to increases in college enrollment and attainment. Second, without significant improvements in college readiness levels among high school graduates, a growing college premium will be accompanied by increases in income inequality.

Tighter disability insurance rules for adults boosted their children’s later earnings

Does a parent’s participation in a social safety net program have spillover effects on their children? It is hard to get causal evidence here, given the strong selection effects into these programs. To overcome this problem, Gordon B. Dahl and Anne C. Gielen look at a 1993 policy change in the Netherlands that imposed tighter restrictions on who could receive disability insurance (DI), and on how much they could receive. Crucially, the policy change only applied to DI recipients under 45, while recipients over 45 continued under the existing, more lenient policy framework. The stricter policy led to a 4% decrease in the number of recipients and a 10% reduction in annual benefits. This cut in DI led to a wide range of intergenerational spillover effects. First, children whose parents were subject to the harsher DI rules are 11% less likely to participate in DI. Second, children’s taxable earnings, once they become adults, increase. Third, participation in other welfare programs (as adults) is not affected. This suggests that the stricter DI both reduces government spending and increases revenue over time through children’s higher tax payments. Interestingly, when parents are subject to stricter DI rules, their children are less likely to commit a crime or use prescription medications for mental health disorders in adulthood. These children also invest in more years of education than their peers. Together, this suggests that the wide-ranging effects of DI participation are felt well into the next generation.

Highly standardized charter school models replicate their effectiveness as they expand

Can high-quality charter schools replicate their successes in new locations as they scale up their programs? Sarah R. Cohodes and her co-authors study the expansion of the “No Excuses” charter school program in Boston, which doubled the number of school in the city, from 16 to 32, between 2010 and 2014. “No Excuses” schools share a series of practices that include strict discipline, increased time in school and frequent teacher feedback. Before the expansion, the program had been found to effectively increase test scores, reduce teen pregnancy, and increase college attendance. Using data from school admission lotteries, they find that No Excuses schools were able to maintain their effectiveness even after the expansion. Just one year of attendance resulted in significant gains in both math and English test scores. Charter schools are able to scale up their success in part because their highly standardized school models minimize teacher discretion, so any reduction in teacher quality caused by program expansion may not significantly affect the school’s effectiveness.

Top chart: The number of Black adults with bachelor’s degrees or more education doubles since 2000

This week’s top chart shows that the percentage of Black adults with a post-secondary degree has grown steadily in the last 20 years. The number of Black adults aged 25 and older with at least a bachelor’s degree has more than doubled, to 6.7 million.

black bachelorsChart source: Pew Research Center analysis of 2000 decennial census and ACS for 2006-2019

Choice opinion: Biden’s infrastructure bill reimagines the US economy and the role of government

“The infrastructure bill represents a complete swerve from the let-the-market-handle-it approach, instead hearkening back to the massive government investments of the New Deal and the Dwight D. Eisenhower administration. In those decades, the U.S. extended its electrical grid, created the interstate highway system, built the suburbs, upgraded and expanded universities and spent much more money on research. Biden’s bill basically looks like a repeat of that effort, but with more of a focus on climate change and racial inclusion,” writes Noah Smith.

Self-promotion: Conducting economics research on racism and discrimination requires more comprehensive and novel data

Randall Akee and Marcus Casey show that the study of race and racism has “long been hampered by the relative lack of longitudinal data collected on relevant markers of discrimination, racism, and related long-term outcomes.” A recent expert panel convened by the American Economic Association Committee on Economic Statistics highlighted three key barriers to research on race. First, prominent longitudinal data sets, like the National Longitudinal Study of Youth, the Survey of Consumer Finance and the Panel Study of Income Dynamics often have small sample sizes for groups such as Asians, American Indians, and Hispanics. Second, many instances of racism in society are not easily captured. The “behind closed doors” conversations where hiring, promotion and loan decisions are made, for example, are not directly observed in the dataset; Akee and Casey call for novel data collection methods that give us insight into these types of interactions. Third, administrative data sets collected at the federal and state government levels are not linked together well enough to allow for disaggregation and analyses by race. Their conclusion: good economics research on racism starts with good data.

For your calendar: social policies for protecting families, financial security and mobility for workers, and using evidence to design public policy 

Rethinking unemployment insurance and housing support: Policies to protect workers and families

    • The Hamilton Project at Brookings
    • Tuesday, April 13, 2021 10:30 AM – 12:30 PM EDT

The future of worker financial security: The nexus of work and benefits

    • WorkRise
    • Wednesday, April 28, 2021 1:00 PM – 2:00 PM EDT

Updates from the Pathways Clearinghouse: Using implementation details

    • Pathways to Work Evidence Clearinghouse
    • Thursday, April 29, 2021 3:00 PM – 4:00 PM EDT