11.126J | Spring 2007 | Undergraduate, Graduate

Economics of Education



Introduction: Defining the educational problem

These readings examine three major dimensions of the economy’s performance. One is the growth of productivity, the determinant of rising living standards. The second is income inequality. The third is income mobility—the extent to which someone born in one part of the income distribution moves to another part of the distribution (higher or lower) over their lifetime. As we will see, all three of these dimensions rely to some degree on education.


Human capital theory: The basic economic perspective on education

This reading summarizes the basic approach of economists to education in which education is viewed as an investment made by the individual (you deciding to go to college), society (provision of public K-12 schools) or both (you deciding to go to a state university). From an individual’s perspective, evaluating the investment is similar to evaluating whether one should invest in an office building or a new printer for an office.


Early childhood education: How important?

Society or the individual can invest in education at different points in the individual’s life: Early childhood, grades K-6, on-the-job training and so on. Investments at different points in the life cycle may give very different rates of return. These pieces examine the proposition that much of cognitive functioning is well established by the time the child is age four or five with the implication that the rate of return to educational investments in grades K-12 is much lower—i.e. it is not where we should be putting our greatest efforts. Read the Feinstein article for general content and its main conclusions and do not spend a lot of time on those statistical parts that you don’t understand.

Problem set 1 out 5 days after Ses #4

When did earnings become so dependent on education?

If we want to explain market changes over time, a central question is whether the supply side or the demand side of the market is doing most of the changing. Imagine you are examining the behavior of the market for middle-aged men whose education stopped with a bachelors’ degree. Do you expect the supply side of this market to change more quickly than the demand side or vice-versa?


Do our regression estimates overestimate the impact of education on earnings? The case of ability bias.

Think about a regression model that estimates the impact of an additional year of schooling on earnings. We know that on average, students who graduate high school have higher grades, test scores, etc. than students who drop out. Similarly, students who go to college typically have higher grades, test scores, etc. than students whose education stops with a high school diploma. Question: Why might this “sorting” cause us to question our regression estimate of the effect on earnings of an additional year of education?

Problem set 1 due on Ses #7

If the return to education is real, does it reflect skills learned or is it a signal?

If the estimated return to education is accurate, why does it exist? Does, say, the earnings value of a college diploma reflect what is learned in the college? Or, alternatively, do the employers see the diploma as a signal that the student was smart enough to get into college in the first place?
Before reading the articles, ask yourself what data you might use to distinguish between these two possibilities.


Why has the rate of return to education increased?

We now know from wage data that labor market demand has shifted heavily toward more educated labor. To what extent do these shifts reflect changes in technology? In international trade? In institutional factors like unions and CEO perceptions of “appropriate behavior”?

Problem set 2 out on Ses #9

What skills are now rewarded in the workplace?

If the combination of computerization and offshoring is reducing the number of jobs requiring “rules-based” thinking, how do we describe the thinking required for the jobs that are left - particularly those jobs that pay good wages?

12 Midterm Problem set 2 due

Do smaller classes raise achievement?

Reducing class size is one of the most discussed ways to raise student achievement. Because the reform is simple to explain, it is a good starting point to discuss questions we will face for the rest of the course: Exactly how is this reform supposed to raise student achievement? What kind of evidence do we need to know whether this reform works? Can we get the evidence from “natural experiments” that occur out in the world? Alternatively, do we need to conduct controlled experiments that we evaluate? If so, how should the experiment/evaluation be structured?


School vouchers and parental choice

A second frequently discussed educational reform is educational choice including school vouchers. With a few exceptions (which we will discuss in class), natural experiments involving school choice are hard to come by. The question, then, is how we should set up and evaluate demonstration experiments. The issue becomes more complex because many parties to this debate have strong pro or anti-choice views and structure their analyses to support their opinions. One of our jobs is to factor out that bias. There are only two papers for this topic because the second paper is quite detailed. You should be able to understand all the results even if you do not understand all the statistical methodology.


School accountability, standards and testing

A third widely used educational reform is a set of educational standards and assessments - think “No Child Left Behind”. Unlike traditional standardized tests - for example, the California Achievement Tests or Iowa tests that many of you took in elementary school - the scores of these assessments are widely publicized to the public and their design (which varies from state to state) raises a number of questions: What subjects should be tested? How should the tests be designed (Multiple Choice? Partial credit for how you set up a problem? etc.)? Should good test scores lead to a reward for the school? For the individual teacher? Should bad test scores lead to penalties?

Problem set 3 out on Ses #17

Problem set 3 due on Ses #18


Teacher quality and teacher training

Policy makers discuss the need do improve teacher quality but unlike smaller class size or standards, it is not very clear how to do it. There are at least four questions we need to answer. What has actually happened to teacher quality over time? What characteristics should we look for when we hire teachers? What characteristics should we look for in deciding whether to give a teacher tenure? And are there things we can do to improve the classroom skills of teachers who are already on the job?


Can technology complement what teachers do?

Everyone agrees that well-educated students must know how to get information from the Web, etc. There is less agreement on whether computer technology can complement teachers in their instructional role. We can think of two broad application areas: Computer tutors that help students work on basic reading, writing and mathematics, and simulations that require students to solve complex “real world” problems in the classroom. Most of our focus in this section will be on drills including a case study of computer-graded essays - how the software was developed and what it can do.

Problem set 4 out on Ses #22

Higher education: Basic issues and structure

For most policy makers, one U.S. educational goal is a greater number of college graduates. Here as in earlier topics, we need to clarify why the current number of college graduates is limited. Is it that too few kids are applying? Is it that an adequate number are applying but too many drop out? At the same time, before we can think about policy, we need to understand what colleges are trying to do just as we need to understand what firms are trying to do before we can consider the impact of tax policy.


Higher education policy

Turning to policy, expanded financial aid, remedial instruction and services to encourage students to continue in college are three of the most discussed tools for increasing the number of college graduates. The question is how well each of these tools work?

Problem set 4 due on Ses #24
26 Wrap up  

Course Info

As Taught In
Spring 2007
Learning Resource Types
Problem Sets with Solutions
Exams with Solutions
Lecture Notes