• Western Economics |
• Western Social Science

1. Family Income and Child Achievement

Understanding whether increases in family income will improve child achievement and schooling outcomes is important for understanding intergenerational schooling and income relationships as well as the design of social and economic policy. Gordon Dahl and Lance Lochner exploit changes in the U.S. Earned Income Tax Credit in the 1990s to identify the causal effects of long-term increases in family income on children. Their estimates suggest larger effects that the previous consensus that failed to adequately address the endogeneity of family income changes.

Related Publications and Working Papers:

Dahl, Gordon and Lance Lochner, "The Impact of Family Income on Child Achievement: Evidence from the Earned Income Tax Credit,"  American Economic Review, forthcoming.

Press References:

"Tax credits boost school performance, study shows," Sarah Cassidy, The Independent, August 22, 2005.

2. Borrowing Constraints, Early Family and Late Schooling Investments in Human Capital

Given the strong relationship between parental income and child achievement and educational attainment, economists have hypothesized that many lower income parents with young children may be borrowing constrained and unable to efficiently invest in their children. Using data from the U.S., Elizabeth Caucutt and Lance Lochner estimate that income received by families when children are young has a greater impact on child achievement and schooling than does income received by families when children are older. This indicates that borrowing constraints may, indeed, be a problem for many young families. Caucutt and Lochner then develop an overlapping-generations framework to analyze early family and late schooling investments in human capital when families and youth may be borrowing constrained. This research aims to identify the importance of borrowing constraints at different stages of life and the extent to which policies at one stage (e.g. post-secondary financial aid programmes) affect investment behavior at other stages. Flavio Cunha, James J. Heckman, Lance Lochner, and Dimitriy Masterov survey a vast multidisciplinary literature on early childhood and schooling investments. Interpreting this evidence through the lens of a lifecycle framework for human capital investment, they conclude that investments made at different stages of life are highly complementary.

Related Publications and Working Papers:

Caucutt, Elizabeth, and Lance Lochner, "Borrowing Constraints on Families with Young Children," in Innovation in Education, Cleveland: Federal Reserve Bank of Cleveland, 2006, pp. 39-48.

Caucutt, Elizabeth, and Lance Lochner, "Early and Late Human Capital Investments, Borrowing Constraints, and the Family," Working Paper, 2009.

Cunha, Flavio, James J. Heckman, Lance Lochner and Dimitriy Masterov, "Interpreting the Evidence on Life Cycle Skill Formation," in E. Hanushek and F. Welch (eds.), Handbook of the Economics of Education, Vol. 1, Chapter 12, Amsterdam: Elsevier Science, 2006.

3. Teacher Labor Supply

Recent research suggests the importance of teachers in determining pre-secondary and secondary outcomes. Thus, the labor supply decisions of teachers may have a substantial impact on students. In a series of papers, Todd Stinebrickner and co-authors provide new evidence about teachers’ work decisions. A common theme is that teacher labor supply decisions are strongly related to family factors. Indeed, unlike what might be expected given public dialogue, very few teachers leave teaching for non-teaching occupations.

Related Publications and Working Papers:

Scafidi, Benjamin, David L. Sjoquist, and Todd R. Stinebrickner. "Race, Poverty, and Teacher Mobility," Economics of Education Review, 26(2) April 2007, 145-159.

Scafidi, Benjamin, David L. Sjoquist, and Todd R. Stinebrickner. "Do Teachers Really Leave for Higher Paying Jobs in Alternative Occupations?" Advances in Economic Analysis and Policy, Berkeley Electronic Press, 6(1) January 2006, Article 8, 1-42.

Stinebrickner, Todd R. "An Analysis of Occupational Change and Departure from the Labor Force: Evidence of the Reasons that Teachers Leave," Journal of Human Resources, 37(1) Winter 2002, 192-216.

Stinebrickner, Todd R. "Compensation Policies and Teacher Decisions," International Economic Review, 42(3) August 2001, 751-779.

Stinebrickner, Todd R. "A Dynamic Model of Teacher Labor Supply," Journal of Labor Economics, 19(1) January 2001, 196-230.

4. Effects of Educational Vouchers When There are Peer Group Effects

One fear of opponents of educational voucher policies is that weaker students will be left in low quality public schools. Such an argument implies that the quality of the school depends not only on its financial resources, but on the students who attend. Determining the consequences of educational vouchers on human capital accumulation requires an understanding of how peer groups affect sorting across schools, and hence schooling outcomes. The difficulty with considering peer effects is that they cause an externality, so a parent’s decision depends on what other parents choose to do. To address this issue, Elizabeth Caucutt (2001) develops an applied general equilibrium club environment with peer group effects. Existence of equilibrium for the economy with a finite number of school types and with a continuum of school types is established, and the two welfare theorems are shown to hold for both economies. Caucutt (2002) uses this framework to study the effects of various educational voucher policies on the sorting of children across schools and the per student expenditure levels at these schools when a child's peer group matters and students differ over income and ability. Depending on the magnitude of the voucher, switching from a public system to a voucher system could entail either welfare gains or losses. All voucher policies under consideration lead to greater inequality than the public system; however, these increases are not monotone in the voucher size. This analysis is extended to a dynamic framework in Caucutt (2004). All voucher policies studied result in welfare gains and reductions in income inequality, while a completely private system entails a welfare loss and an increase in income inequality. The more important peers are to future income, the smaller the welfare gain and reduction in inequality associated with voucher systems and the greater the welfare cost and increase in inequality associated with a private system.

Related Publications and Working Papers:

Caucutt, Elizabeth M., "Peer Group Effects in Applied General Equilibrium," Economic Theory, 17 (1) 2001: 25-51.

Caucutt, Elizabeth M., "Educational Vouchers When There Are Peer Group Effects – Size Matters," International Economic Review, 43 (1) 2002: 195-222.

Caucutt, Elizabeth M., "The Evolution of the Income Distribution and Education Vouchers," Macroeconomic Dynamics, 8 (2) 2004: 226-249.

5. Effects of Family Structure on Investment in Children

There have been huge shifts in the patterns of fertility timing in the United States over the last 40 years. The percentage of children born to mothers over 30 rises from 36% to 44%. Elizabeth Caucutt, Nezih Guner and John Knowles (2002) develop a search model of marriage, divorce, and investment in children in order to understand the causes and effects of this demographic shift. Changes in the return to work experience for women are shown to partially explain the change in fertility patterns. The resulting changes in fertility and marriage affect children in two important ways. As women delay childbearing, more children are born later in their parent’s life-cycle, increasing the investments they receive. However, the shifts in fertility have also given rise to more single parents, who are unable to invest as much in their children as two parent families do. Quantitatively the latter effect dominates, and average investment in children falls.

The last few decades have witnessed an unprecedented retreat from marriage and traditional household structure among blacks. This has important implications for the living arrangements and well-being of children, which is likely to have significant intergenerational ramifications. In his well-know hypothesis, William J. Wilson argues that black women are marrying at lower rates because the pool of marriageable black men is small due to joblessness, incarceration, and early death. Previous work has found mixed results linking the availability of black men to low marriage rates. Caucutt and Guner examine whether taking into account not only black men who are currently unemployed or incarcerated, but also the probability that one becomes unemployed or incarcerated, can explain the racial marriage gap.

Related Publications and Working Papers:

Caucutt, Elizabeth M., Nezih Guner and John Knowles, "Why Do Women Wait? Matching, Wage Inequality, and the Incentives for Fertility Delay," Review of Economic Dynamics, 5 (4) 2002: 815-855.

Caucutt, Elizabeth M. and Nezih Guner, "Is Marriage a White Institution? Understanding the Causes and Effects of the Racial Marriage Divide," work in progress.

6. The Effect of Grade Retention

Research by Cooley, Navarro and Takahashi build on the methodology proposed by Heckman and Navarro to study the importance of grade retention policies in elementary education. Increasingly, grade retention is viewed as an important alternative to social promotion, yet evidence to date is unable to disentangle how the effect of grade retention varies by abilities and over time. The key challenge is differential selection of students into retention across grades and by abilities. Applying new methods to address dynamic selection using nationally representative, longitudinal data, this research finds that the treatment effect of retention varies considerably across grades and unobservable abilities of students but is, in general, negative. Furthermore, the negative effect of retention on treated students generally diminishes as time since retention passes.

Related Publications and Working Papers:

Heckman, James and Salvador Navarro, "Dynamic Discrete Choice and Dynamic Treatment Effects," Journal of Econometrics, 136(2), 2007.

Cooley, Jane, Salvador Navarro and Yuya Takahashi, "Identification and Estimation of Time-Varying Treatment Effects: How The Timing of Grade Retention Affects Outcomes," Working Paper, 2011.

7. Charter Schools

Charter schools provide additional choice for families in many U.S. cities. Their impacts on student outcomes are difficult to study due to the endogenous sorting of students across public, private, and charter schools. In ongoing research, Nirav Mehta develops and estimates an equilibrium model of charter school entry, student sorting, and endogenous school inputs in public school markets using administrative student- and school-level data from North Carolina for 1998-2001. In the model, students differ by ability, and both charter and public schools make input decisions to test score production functions to affect the ability distribution of attendant students. The model successfully fits key endogenous outcomes as observed in the data: 1) charter schools enter larger markets and markets where they would have higher per-pupil resources, 2) charter schools and public schools in markets in which charter schools are present both choose higher input levels than public schools in markets where there are no charters, and 3) charter schools have the highest average test scores, followed by public schools in markets with charter school competition, followed by public schools in monopoly markets. The estimated model is used to simulate changes in the test score distribution for three counterfactual scenarios: 1) ban on charter schools, 2) lift the currently binding statewide cap on the number of charter schools, and 3) equate charter and public school per-pupil resources. In the first and second counterfactuals, charter school entry increases test scores for students who would attend charters by one fifth of a standard deviation. Test scores for public school students in markets with charter schools increase marginally. Equating charter and public school capital triples the fraction of markets with charters and increases the test scores of students attending charters over the monopoly outcome by an even larger amount.

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