Teenage achievement and the house price bubble

The general economic context of where and when you grow up matters. Think, for example, of those raised during the Great Depression in the US or World War II in Europe who are likely to be very careful with their spending, never through anything away and finish their plates. In this regard, what should we expect from those reaching adulthood in the past years?



Daniel Cooper and María José Luengo-Prado study the impact on teenagers of the house price boom before the current crisis in the United States on educational outcomes. Using the Panel Study of Income Dynamics (PSID), they find that a 1% higher house price at age 17 leads to a 0.8% higher income as adult if the parents owned the home, 1.2% lower if they were tenants, after conditioning for socio-economic characteristics. These are big numbers. They can be justified by the observation that higher house prices allows more collateral to borrow for education. Indeed households with a below median non-housing wealth saw even a 1.6% boost in their child's future income. To explain the impact on tenants, I suppose one can explain it with higher tuition in reaction to larger loans, which tenants cannot afford as well.



The consequences from the recent house price crash are daunting in this context. And given that state are disengaging themselves from financing their public colleges, leading to even higher tuition, the outlook is even worse.

On the value of liberal arts education

I find a recent opinion article on CNN by Michael Roth, the president of Wesleyan University, on the value of liberal arts education rather upsetting. I can understand that as the president of a liberal arts college he wants to defend this particular type of education. But his arguments ring particularly hollow, and I would have expected better from someone leading on of the best liberal arts colleges.

His selling points are the following. 1) A broadly-based education is better then professional or technical expertise. 2) Liberal arts develop critical thinking and creativity. 3) Focusing on science and engineering is a serious mistake. 4) Effective implementation of new technology requires social and economic understanding. 5) Scholarship in humanities increasingly requires scientists. 6) Flexibility is important on the job market.

I agree that an education can be too narrow. But the US liberal arts way of doing it is a waste. Undergraduate students spend less than two years worth in their chosen major, and most end up being functionally incompetent in their major as they graduate. I realize this is largely due to the fact that high schools failed to give them this broadly-based education as they water down requirements. But there has to be a better way. Send those who have not yet mastered the general education requirements to community colleges, for example.

If the US is the bastion of liberal arts, as Michael Roth claims, then he cannot claim it favors critical thinking. I am continually amazed how US students woefully lack in this regard, with few exceptions of course. They are not interested in what they are studying or the world outside. They are very passive and minimalist students. This is favored by the "anything goes" attitude that liberal arts favor.

The reason why the US is a world economic leader is that it has a scientific and technological edge, and that is has economic policies that provide good incentives, at least better than the rest of the world (and that Americans are obsessed with working). That edge is waning because other countries are catching up on the scientific and technological front and have already surpassed the US in several areas. Michael Roth apparently thinks it is wrong to try to keep that edge, and that one should focus more or social sciences, humanities and fine arts. He got the causation wrong. One can afford this when one is rich, but it does not make you rich.

I think he right on the fourth point. It is useless to engineer better crops if you cannot find a way for people to adopt them. But one does not need more liberal arts majors than scientists to achieve this. His fifth point actually shows liberal arts needs science, so science should not be discouraged.

I also agree with his sixth point. That is why one should have sufficient time to teach not just the recipes of a field, but also where they come from. This allows a student later to come up with new solutions to new problems. But the 3-4 semesters in a major do allow this. The result is that in fields where this is not sufficient students are not competent enough and end up with jobs outside their major and with low pay. Just look what pay is across majors. Liberal arts majors are consistently at the bottom, also due the fact that there are just too many of those students.

No, we should not encourage liberal arts education. This should be done in high school and community colleges. Let universities concentrate on the teaching of the core and produce truly competent professionals.

Students hate good teachers

Teachers often find student evaluations rather frustrating. They are contradictory, short-sighted and sometimes insulting, especially when students did not put much effort in the class in the first place. Student evaluations are also biased towards teachers who are physically more appealing. And students, with their lack of experience and expertise, are not in a good position to evaluate an expert. What more could be said against student evaluations?

Michela Braga, Marco Paccagnella and Michele Pellizzari find that better teachers get worse evaluations. The way they measure teacher effectiveness is by looking at how students do in subsequent classes. They find that teachers matter, and substantially as the teacher can explain 43% of the standard deviation in subsequent grades. But the good teachers get a worse student evaluation, which is frightening, because administrators are getting the wrong message.

From the tables, I gather that higher ranked faculty teach better, but older and researchers with higher H-indexes do worse, which is rather contradictory. I wonder whether taking into account the obviously high correlation between some of the independent variables would take care of this, or other controls, like the attractiveness mentioned above.

Marginal returns of education policies

It is well-known that the returns to education are high, higher than financial returns in fact. Especially for primary education, estimation of Mincer equations has yielded returns over 12% a year, returns that decline somewhat with additional years of education. These are personal returns, that is, how much one's wage increases with an additional year of education. This indicates that one should choose more education than less. From a policy point of view, it is, however, not clear that one should try to stretch as much as possible education. Indeed, higher education is more costly and its returns may differ by individual.

Pedro Carneiro, James Heckman and Edward Vytlacil address this heterogeneity by estimating returns from the National Longitudinal Survey of Youth of 1979. They are certainly not the first ones to do so with this dataset, but the innovation is in the use of instrumental variables. Indeed, they identify a serious shortcoming in interpreting the latent (Corr: local) average treatment effect because the people induced to go to school by a change in an instrument may not be the same that are induced to go to school by a given policy change. As a consequence, the returns for the two types of people can be quite different, and they are in this case. They improve the estimation technique by identifying what sections of an economically interpretable mean marginal benefit surface are identified by different instruments.

Carneiro, Heckman and Vytlacil conclude from their analysis that returns of higher education differ indeed from individual to individual, and in a way that is highly predictable by both the econometrician and the individual. In other words, people who sort themselves into higher education are those who have already experienced high returns and are likely to experience high ones in the future. This indicates that with current policies the right people go to higher education, and that encouraging more to go to college would not yield returns as high as for those who already go there.

Today's students are lazy

I find it quite frustrating to teach undergraduates, as they seem to have difficulties grasping simple concepts and often exhibit a disturbing lack of drive to learn. I may say this is due to my teaching, but my sentiment has been echoed by many colleagues, at my place and elsewhere. In addition, this frustration is fueled by the difference I see between undergraduates today and those from my times as a student. That view may very well be biased, as I was a rather good student, thus I am looking forward to some objective measures of student effort and performance.

Philip S. Babcock and Mindy Marks use time use surveys of students in 1961 and 2003. They notice that the time spent studying has been reduced from 40 hours a week to 27. This is not a small change. And this cannot be explained by any composition effect, as it appears no matter how you slice the data. There is some non-measurable way in which students are different.

One thing is that they rely much more on textbooks, thus they need to do much less note-taking and transcription, or trying to understand what they wrote. This would be positive for outcomes, probably. But universities pamper students much more with social activities that distract them from studying, on top of all the dispersions TV and the internet now offer. And finally, students find much less of an urge to do well, as they have the impression, which is not wrong, that they will be doing fine anyway. They do not need a work ethic to succeed any more.

Economists are less generous, but not by indoctrination

From many experiments, it is known that economists are more selfish than others. the interesting question is whether selfish people select themselves into Economics, or whether Economics students get indoctrinated by the material they are covering in classes.

Yoram Bauman and Elaina Rose use data from students at the University of Washington to elucidate this. There, students can donate to social programs each quarter. This is tracked along with their taking Economics classes. While Economics majors are indeed less generous, this does not appear to evolve over time. One can thus conclude this is a section effect. However, non-majors become more selfish once exposed to Economics. In other words, economists are quite convincing.

College fraternities and the labor market

I have always considered college fraternities to be a nuisance. They appear to be mostly about drinking and making a mess on campus, although they also organize some activities for the public good. As any social club, there may also be some value of being a member beyond the socializing.

Sergey Popov and Dan Bernhardt build a model of two-sided selection of fraternities and its members. Candidates may differ by ability, and membership in a fraternity may be viewed as a signal of ability by employers. The paper shows that anything can happen in terms of equilibrium: informative, uninformative, good students, bad students or no students in fraternities. But using data about student grades at the University of Illinois, Popov and Bernhardt show that the following equilibrium is most likely: The best students shy away from fraternities while the worst ones do not get in. Fraternities only have students with medium abilities. But would these students have better grades if they did not spend significant time in fraternity activities?

What do Economics graduate students think?

David Colander has made a series of illuminating surveys of graduate students in Economics that have given us a very interesting picture of our profession, or at least how these students view it. Much of his work was, however, performed with surveys sent to the top US PhD programs. He follows up now with a survey of what he compassionately calls the "median" range, the other US graduate programs.

David Colander, Tiziana Dominguez, Gail Hoyt and KimMarie McGoldrick report a few interesting results. Compared to top programs, median ones have proportionally more Americans, who are more likely to have chosen the program for geographical than prestige reasons. Students from median programs seem to be more interested in various fields of Economics, probably a reflection of the fact that they are on average two years older and have more of sense of purpose in their studies. I am pleased to read that about half the students consider Economics to be a tool set. It is also interesting to note that whether in a top or median program, students appear to have similar views of policy and of assumptions in Economics.

All in all, students in top and median schools do not look that different. Their expectations in terms of jobs are different, as they should be, as well as the way they get funded. Lower ranked schools cannot fund them as well as research assistants or provide them with fellowships. Colander and co. interpret the fact that more are teaching assistants at median schools as a choice by students, it seems more a funding constraint to me. No real surprises in this survey.

Expected earnings do not matter for post-secondary studies

Do college students choose their field of study according to expected income? One would hope so, as the price mechanism would then lead to more efficient uses of human resources. This optimality criterion would only hold if there were particular distribution of abilities across fields prior to the start of studies. But leaving this aside, do prices matter?

Magali Beffy, Denis Fougère and Arnaud Maurel use French data and exploit the fact that the expected returns of study majors vary with the business cycle. As the cost of studies in negligible in France, tuition is not a factor, although the duration of studies varies a little by field and thus the opportunity cost of studying, but that is largely unaffected by the business cycle. They conclude that while expected earnings matter in a statistically significant way, it is not significant in economic terms. That means, students take expected earnings into account, but it influences them little. This means, there will always be a lack of nurses, accountants, and engineers, and always a surplus of humanists, whatever the market wage is (within reasonable bounds of course).

Student aid and duration and success of study

We know pretty well that increasing student aid increases the likelihood of attending college, little is know about its impact on study duration and success. Daniela Glocker uses German data and finds that the source of support matters. Institutional student aid leads to shorter study duration than, say, support by parents. The amount of aid has no impact on duration, but improves the probability of successful completion of studies.

I find these results surprising. One would think that parents would be able to put more pressure on finishing in time than a government may be able to. Also, having more funding reduces the opportunity cost of studying, thus giving more incentives to take it leisurely, especially in Germany where students have plenty of opportunities to delay graduation. So why are those results found? One would think that this has to do with students not getting aid having to work, but it appears working time has not impact on graduation time or success. Glocker thinks this has to do with the fact that how of the loan needs to be repaid is tied to graduation time. too bad this could not be controlled for, or the results would have been really interesting.

College major choice by gender: market outcomes matter more than interest

We do males and females choose different major subjects in college? This could be because of innate abilities or because of expectations about the prospect within a particular profession. For example, previous to college, girls have typically equal or better mathematics skills than boys, but they are noticeably under-represented in math intensive field in college, like sciences (excluding biology) and engineering. Could this be because female students somehow perceive that their prospects are better in social sciences and humanities?

Basit Zafar claims this is the case, based on a survey of second year students at Northwestern University, a survey that includes questions about expectations. This allows to understand the formation of preferences, not just choices. The short answer is that men care more about money and women look at non-pecuniary aspects. In other words, it looks like biology is still the important factor, and fighting it to force women into science against their will may not be the best thing. However, these results could also be interpreted that women do not want to get into certain fields because money does not buy happiness if (as a woman) you do not feel welcome. Engineering, for example, does not strike me as a field that has the reputation of welcoming women (rightly or wrongly).

On a side note, interesting to see that the Federal Reserve Bank of New York is interested in this kind of work.

The subtle strategies of early college admissions

Matching students to colleges in an optimal way is a very difficult task. This has been extensively studied, for example for medical interns where a mechanism was sought to prevent hospitals to grab the best students when they have barely started their studies. College admissions in the United States is a much larger market and universities, especially elite ones, have been playing strategic games by offering early admission programs with various conditions. The most current one is to have students apply early and get an early response against a binding commitment to attend if accepted. This leads potential students to act strategically in their applications, and it is widely believed that this is particularly detrimental to lower income students.

Ayse Mumcu and Ismail Saglam study this early admission market in the tradition of Gale and Shapley. In the first phase, it is a many-to-one early matching, where students apply to at most one college, and colleges accept students of their choice within a quota, or defer them to general admission or reject them. In the second phase, it is a many-to-one regular matching as students apply to many colleges and may accept only one positive college decision. The schools can then choose which strategy to adopt in terms of admission policy.

It turns out that early decision is the preferred policy for colleges: students can apply at most to one college in the Fall, before general admission, and have to commit to attend if admitted. Colleges want to attract their preferred students, presumably the best students who themselves want to go to the best colleges. To avoid admitting inferior students, they seek commitment from applicants. This, however, benefits colleges more than students, as colleges have a first mover advantage by selecting the admission procedure. Interestingly, Harvard has decided recently to scrap its early admission program, officially to give a better chance ot lower income students. But the real reason is probably that Harvard believes it is a first choice among applicants anyway, so it does not need to coax them into a commitment, as long as other alite colleges follow suit, which seems to be happening despite the fact that it is against their interest.

The economics major in a liberal education

David Colander has produced over the years an impressive series of papers (and books) discussing the economics profession and in particular the education of economists. In his latest report, with KimMarie McGoldrick, he assesses how the economics major fits within a liberal education, with a special emphasis on liberal arts colleges.

For undergraduate studies in the US, having an economics major does not mean that you are an economist. Typically, out of four years of study, little more than a year has actually been devoted to economics. This contrasts with most programs abroad where students concentrate on their major from the get-go. This is a reflection of different attitudes towards education, the US prefering a flexible, general education and, say, Europe favoring a specialized, but more rigid schooling.

Quite obviously, it then becomes difficult to claim that US economics undergraduates have reached their potential. There was simply not enough time to get them there. This is why graduate studies are nowadays essential to become a professional economist. But Colander and McGoldrick do not call for more depth in the major, rather for more breadth. Their point is that a well-rounded undergraduate education should not focus on research questions, but rather teaching questions. The latter are like "is capitalism good?", "should we accept consumer sovereignty?", or "what size should government have?" Faculty are too focussed on their research to address such questions.

I have no problem with addressing these questions in class, but I do not because there is too little time to address them. As Colander and McGoldrick correctly assess, an economics major will, by graduation, have spent less than a third of 1% of his time studying economics. You have barely touched the basics with so little time. I would prefer that high schools did a better coverage of general education so that colleges do not need to spend that much time on it. General education is important, but it should be concentrated in high school. There is no reason only college students should benefit from it.

The case against student evaluations

It is time again for student evaluations and the biannual ritual where students are given the authority to judge how well they were treated in their classes. While I agree that it is useful to have some indicators about the quality of teaching, I do not think students are the best people to ask about this.

As Walter Bossert argues, the facts that students are obviously no experts in the taught material, that they perform the evaluation anonymously without having to justify their marks and they have no guidelines on what the marks are worth makes this a highly dubious effort. Imagine if teachers were evaluating students this way!

From my own experience and from pouring through others' evaluations (a sad exercise), students reward those who make it easy on them. Just look how students discuss their teachers on Professor Performance or Rate My Professors. A committed teacher who wants her students to really learn and pushes them to work hard is doomed.

Then, how should teachers be evaluated? By their peers, and by students who have graduated. These are the people that can best evaluate how the teacher masters the material and how it has an impact.

The value of undergraduate education in public universities

High school seniors in the United States are now sending their applications to universities and they will soon face the problem of choosing between public and private colleges. This year seems to be different from others, as student loans were apparently among the first ones to suffer from the current financial crisis, despite being in many cases guaranteed by the government.

As private universities have typically suffered heavy losses in their endowments and are thus not expected to offer the level of tuition support of past years, students are expected to be more likely to accept offers from public universities. In fact, the latter already report much larger admission submissions than previous years.

At the undergraduate level, there is not much difference between public and private universities in terms of value added. Having taught in both, the variance of students is high in both, and I saw no notable difference in motivation. Teachers are better in elite universities, whether private or public, as teaching and research qualities are positively correlated.

Is it worth going private if one did not get into a public school? I would say no. Lower ranked private universities are not worth the price and the student debt. If a student could not make it to public university, he should not go to college at all, as I have argued before.

The quality of students in public schools may actually significantly increase for next year "thanks" to this crisis. And universities may want to accomodate this with increased enrollments. It would not be a good time for state governments to cut support to their universities.

Advice for first year graduate students

About now, most graduate Economics programs are starting. Time for me to give some advice on how to survive this first year.

The first year is going to be a grueling experience. Never before were you so challenged. You may have flown through your classes before, you may have been the first in class. Not anymore. Within a year, you are supposed to be literate in economic research, within a second year ready to contribute to the frontier of research. This is a very short time that will require substantial commitment. Be prepared to spend long hours studying. Do not fall behind. Work with fellow students, not against them. Look beyond the technical aspects of your classes and build up your economic intuition. Attend seminars. Seek contact with faculty beyond the classroom. Do not worry about thesis topics during the first year, but keep an eye open.

The most difficult time is probably going to be in December, where you will be doubting why you are getting into such a stressful adventure. Everyone goes through such a depression, and it is only those who manage to work past this episode who will be successful. So be aware that you will have doubts. Grow over them.

If you are married or in a relationship, it will suffer. Foreign partners get bored of neglect and should seek contact with other spouses in such a situation, or look into taking classes of their own. Still set aside some social time, even if it is just with fellow students. Graduate programs are very multicultural, it is great to learn about other cultures (and foods).

But not everything is stress, doom and gloom during the first year. You will learn exciting stuff, meet exciting people and build relationships that will last for a lifetime, both personal and professional. This is an exciting year where you are building the foundations for decades to come. Make the most of it!

Should Economists be certified?

The Wall Street Journal had yesterday an op-ed on the fact that a college degree often does not constitute proof of competency. As I have argued before, many students have no business being in college, but the latter graduate them anyway. This waters down the quality signal of a college degree. The response to this situation by various trades has been to certify themselves the competences of prospective tradespeople. Examples are the bar exam, CPA, CFA, actuarial exams, etc. Should the same apply to Economics?

In most US colleges, an Economics major has only two years of study in that field, hardly worth claiming to be an economist. To make matters worse, many Economics programs feed on the rejects fom business schools, who typically failed out because of low grades in basic Mathematics and Statistics. Hardly the best clientele for an Economics degree. While Economics programs typically dismiss more students than most other programs, they still graduate many that do not have required competences.

A test like the GRE subject test would have been a good start, but this has been cancelled in 2001. The American Economic Association has been thinking about devising some criteria to be voluntarily applied to college curricula, but I think something much more drastic would be needed.

Colleges are failing their students in economic literacy

College is supposed to teach some life skills to students apart from their major, like critical thinking, a general understanding of the world they live in, an appreciation of others and how to function like an adult citizen in our society. Part of this is some general understanding of Economics. This includes foreseeing the consequences of economic actions, understanding the role of interest and debt.

Obviously, many Americans are not very good with the concept of debt and savings. But one could think this pertains to uneducated people. Not so apparently, according to an article in the Business Week that even claims that universities team up with credit card companies in trying to lure students into shady contracts. So much for leading by example.

Given that many universities cannot sustain themselves from tuition and state grants, I fully understand that they are looking into alternative sources of funding. One important source is alumni contributions, but screwing alumni like this is no long term solution. Much better would be to actually teach them to understand basic money management skills. They be more successful in life for it, and more grateful.