Class Notes: Elite college admissions, data on SNAP, and more

This week in Class Notes:

• • Harvard encourages applications from many students who have very little chance of being admitted, particularly African Americans
  • Wages for low-skilled men have not been influenced by changes in the occupational composition of workers.
  • Retention rates for the social insurance program SNAP (Supplemental Nutrition Assistance Program) are low, even among those who remain eligible.
  • Our top chart shows the relationship between occupational wage percentile and AI exposure.
  • Johnathan Rothwell explores the tenuous relationship between ability and earnings.
  • Finally, check out Jenny Schuetz’s new piece examining the current state of housing affordability in the Las Vegas metropolitan area and what those trends imply about financial security and wealth-building.

Recruit to Reject? Harvard and African American Applicants

Over the past 20 years, elite colleges in the U.S. have seen dramatic increases in applications. In this study, Arcidiacono et al. provide context for this trend using detailed data on Harvard University from the SFFA v. Harvard lawsuit. The authors show that Harvard encourages applications from many students who effectively have no chance of being admitted, and that this is particularly true for African Americans. Indeed, African American applications soared beginning with the Class of 2009, with the increase driven by those with lower SAT scores, but there was little change in the share of admits who were African American.

Skill prices, occupations, and changes in the wage structure for low-skilled men

In this paper, Taber et al. examine the effect of the change in occupational structure on wages for low-skilled men. The authors find that while changes in the occupational structure have affected wages of low-skilled workers, the effect is not dramatic. Wages in traditional blue collar occupations have not fallen substantially relative to other occupations. Changes in occupations explain only a small part of the patterns in wage levels. Price changes within occupation are far more important. Finally, while an increase in the payoff to interpersonal skills is documented, manual skills still remain the most important skill type for low-educated males.

Leaving benefits on the table: Evidence from SNAP

Many social insurance programs require beneficiaries to periodically re-verify eligibility. This allows officials to identify ineligible applicants. However, it also risks losing eligible applicants who do not complete the necessary requirements. While many states have invested in simplified verification procedures to reduce that risk, the efficacy of these new approaches is not well established. In this paper, Gray uses administrative data from the Supplemental Nutrition Assistance Program (SNAP) to establish three facts. First, retention in SNAP is low, with approximately one-half of entering cases leaving in the first year. Second, approximately half of those who exit in the first year are in fact still eligible. Third, simplification procedures reduced the rate of long-term exit by almost 12%. These findings suggest that rates of retention among eligible applicants is low, and that ongoing simplification efforts can increase retention among these beneficiaries.

Top chart

This week’s top chart from our colleagues in the Metropolitan Policy Program shows, contrary to popular wisdom, that workers in higher-wage occupations will be most exposed to AI. The exposure curve peaks at the 90th percentile, suggesting that while middle- and upper-middle-class workers are likely to be impacted by artificial intelligence, the most elite workers—such as CEOs—will be somewhat protected.

Choice opinion

“Income inequality in the United States would fall drastically if people were compensated based only on their ability. The fundamental reason that income inequality is extraordinarily high in the United States relative to other democracies is the disparities in power across groups…For both the left and the right, and everyone in between, it can be hard to see the true benefactors of rising income inequality: professional elites. Beyond a commitment to equality, possible remedies include expanding access to high-quality public services like early-childhood education and community health services for needy families. But the evidence also suggests the need for expanding access to markets and defending their integrity. Both the left and right would have to make compromises; it would seem to be a fair trade, with big gains for all” writes Johnathan Rothwell in the New York Times.

Self-promotion

One of the central principles of financial management is diversification. Yet for most of the 20th century, U.S. families were encouraged to build wealth through an inherently undiversified asset: their homes. The Great Recession brought with it a painful reminder that homes are not guaranteed to appreciate in value. In no place was this more apparent than Las Vegas. In her new piece, Jenny Schuetz examines the current state of housing affordability and homeownership in the Las Vegas metropolitan area and discusses what those trends imply for financial security and wealth-building.