New Economist

Skilled migration boosts innovation

A recent paper by McGill University's Jennifer Hunt to an NBER labour studies programme conference asks whether the increase in foreign-born college graduates has contributed to innovation in the United States. Her paper, How Much Does Immigration Boost Innovation? (PDF), finds that it does:

In this paper I have demonstrated the important boost to innovation per capita provided by skilled immigration to the United States in 1950-2000. A calculation of the effect of immigration in the 1990-2000 period puts the magnitudes of the effects in context.

The 1990-2000 increase from 2.2% to 3.5% in the share of the population composed of immigrant college graduates increased patenting by at least 81:3 = 10:4%, and perhaps by as much as 18%. The increase in the share of post-college immigrants from 0.9% to 1.6% increased patenting by at least 10.5% and perhaps by as much as 24%. The increase from 0.30% to 0.55% in the share of workers who are immigrant scientists and engineers increased patenting by at least 13% but probably by less than 23%.

While I find evidence for the crowding-out of natives in the short run, in the long run there is evidence for the reverse: that skilled natives are attracted to states or occupations with skilled immigrants. The results hint that skilled immigrants innovate more than their native counterparts, especially if they are scientists or engineers. If correct, the result could reflect higher education of immigrants within skill categories, or positive selection of immigrants in terms of ability to innovate. However, the effect of natives is not as well identified econometrically as the effect of immigrants.

These findings suggest there are clear merits in adopting policies to both attract foreign students and to retain them once they have completed their studies (as the UK and Australia, among others, currently do).

Should public schools be privatised? A bloggish debate

Two Australian econo-bloggers, Labor supporter Andrew Leigh and 'classical liberal' Andrew Norton, are running "a bloggish debate" over the next week or so on the topic: Should public schools be privatised?

The Day 1 post is by Andrew Norton. He writes:

People are used to the idea of state schools, so they don’t think about how uneasily government-controlled education fits with liberal democracy. If someone said that Australia’s media should be owned by the state, with journalists told by the state what they should say, with media audiences examined to make sure they had absorbed the official line, there would be predictable and justifiable outrage.

Yet public education means essentially that for Australia’s young people. The government owns most schools, employs most teachers, tells them what to teach through state-set curricula, and examines students to make sure they have it right—even kids escaping to private schools can’t avoid these last two aspects of state-run education. And unlike state-owned media, there are severe consequences for ignoring state education.

...Rather than fostering social unity, as some of its supporters claim, state-controlled education is a source of division and nastiness. Instead of allowing different groups to devise their own curriculum, and letting parents choose between them, we fight over a common curriculum. The public education lobby stirs class and sectarian resentment in its attempts to take funding from private schools.

And what is it, can you remind me, that makes public education worth preserving?

Not views that I share. but it's good to see them aired.

The UK public school 'exodus'

The Saturday Telegraph front page carries a rather alarmist lead story by Graeme Paton and Toby Helm: Middle classes abandon state schools Here are the first two paragraphs:

A growing proportion of middle-class parents are giving up on state education after 10 years of Labour rule by paying to educate their children in the independent sector, official figures have disclosed.

The scale of the exodus is shown for the first time in statistics indicating that many families outside the traditional fee-paying heartland of the South East are shunning comprehensives in favour of private schools.

So just how fast is this "exodus" from public state schools?

Figures from the Department for Children, Schools and Families showed that on average, 7.1 per cent of 11- to 15-year-olds were taught in independent schools in 2004. But by this year the proportion had risen to 7.3 per cent - a total of 232,620 pupils.

There was also a rise in the number of primary-school age children in private education over the three-year period, from 5.5 per cent to 5.6 per cent - a total of 199,030 pupils.

Yep, that's an increase of just 0.2 or 0.1 percentage points over three years. So for 11-15 year olds that's around a 1 percentage point increase in private (i.e. 'public') school's share every 15 years, and for primary-school aged every 30 years.

At that pace it would take 109 years for private school's share of high school students to double (to 14.6% by 2116), and 167 years for the primary-school age share to double (to 11.2% by 2174). Even Methuselah would not have considered that an "exodus".

The most innumerate piece of UK journalism I've read for quite some time.

Is divorce such a disaster for kids?

Philip Larkin may have written that your mum and dad f*%k you up. But what, specifically, about divorce? The British tabloids regularly run features lamenting the "devastating" consequences of divorce on the "tots". But a recent paper by Shirley Liu from the University of Miami undermines some of those assertions.

Her paper, Is My Parent’s Divorce to Blame for My Failure in Life? A Joint Model of Child Educational Attainments and Parental Divorce (PDF), finds - like other research in the field - that children of divorced parents tend to have lower educational attainments. But is this caused by parental divorce?

Using annual data on a representative sample of children and their families since childbirth until the completion of their schooling, we model child’s schooling attainments and parents’ marital dissolution as joint decision processes, where unobservables triggering divorce and affecting child development are assumed to be correlated. After accounting for both observed and unobserved characteristics, we find no evidence that the lower educational attainments is attributable to parents’ divorce per se, but rather due to unobserved factors that are correlated with divorce.

...While further research is into the mechanisms through which parents’ divorce affects child attainments is needed, our findings provide some evidence that divorce in itself does not negatively affect children’s educational outcomes. The reasons for dissolving a marriage tend to be family-specific and usually observed only by the parties involved. Assuming that parents are altruistic and internalize potential gains (and costs) of dissolving their marriage on their children when deciding to divorce, on the margin there may be benefits to divorce (at least for some).

What implications for politicians and policy makers then?

If our goal is to help children from divorced families to become self-reliant adults, policy-makers need to be mindful that divorce in itself may be a consequence, rather than a culprit, of the same underlying mechanism that causes the inferior child outcomes. Simply restricting access to divorce without consideration of individual needs and circumstances can be irresponsible; it may also risk jeopardizing the welfare of many families and their children.

The 'family über alles' crowd won't like that.

UPDATE:
Undercover economist Tim Harford links to this post on his newish FT weblog, adding:

The economics of pre-school

The Wall Street Journal's Real Time Economics weblog has an interesting post by Deborah Solomon on the economics of pre-school

James Heckman, University of Chicago economist and 2000 Nobel prize winner, has become a key advocate for pre-school, with his work routinely cited by everyone from Sen. Hillary Clinton to state legislators. But his interest in early education happened in a roundabout way.

In the early 1990s, while doing work evaluating government job programs, he noticed that the reason minorities weren’t going to college at a greater rate was not because they couldn’t afford it but because of “ability gaps.” Minorities were more likely to be lacking in both cognitive and non-cognitive abilities, making it more difficult for them to excel – or even stay — in school.

He grew interested in finding out when those gaps first occur and was surprised to discover that they take place in a child’s formative years.

“I happened to notice that ability gaps opened up very strongly at ages 3, 4 and 5,” Mr. Heckman says, adding those gaps “were so predictive of a range of behavior.”

That discovery helped fuel his belief that intervention efforts need to happen while kids are still very young, before they even get into Kindergarten. “If we wait too late the costs of remediation are high and they’re higher than anything we’ve paid so far,” he said. Mr. Heckman is part of a growing cadre of economists — Federal Reserve Chairman Ben Bernanke among them — who see pre-school as a cure for inequality. (Read more in a page-one WSJ article here.)

In 2004, he and a colleague produced a paper with some landmark findings, including that pre-school could reduce crime, keep people off welfare and boost taxes down the road. His paper has been cited by legions of pre-school supporters, who tout the economic benefits as a strong reason to fund pre-school.

But while Mr. Heckman is a proponent of early education, he believes it should be targeted solely at disadvantaged kids and not all kids, as some advocates propose.

“You go where the marginal returns are the highest and they’re highest with disadvantaged children,” he says. He fears that all the economic data – including his own — has produced a “rush to judgment” that has convinced some camps to pre-school for everyone will produce the greatest return.

“It worries me a lot,” he says. “Science doesn’t support universality … we have to approach it more cautiously.”

Should schools teach happiness?

Richard Layard certainly thinks so. In a new article in the Summer 2007 edition of the LSE magazine CentrePiece, the happiness guru argues that a major purpose of schools must be to help develop good and happy people - especially at a time when growing numbers of children are suffering from emotional disturbance. He calls for "educational revolution in which a central purpose of our schools is to teach young people about the main secrets of happiness for which we have empirical evidence". See: Happiness and the teaching of values (PDF).

50% of young people say that their main ambition is to be happy: it’s the most commonly stated ambition and very sensible too (Park et al, 2004). Let’s help them. I have no doubt that new institutions will also develop for adults. But from a public policy perspective, we must start with schools. This is a good moment. People are worried about young people from many angles. We have good tools with which to help them. The key need is to create a profession of PSHE teachers, who give evidence-based teaching that changes lives, and that goes on to 18.

But yesterday's Financial Times leader, Happiness lessons, is sceptical:

The first problem is that happiness is not a teachable subject. It is famously elusive and may be unattainable. Pursuing it as an aim is difficult since it is more readily gained as a side-product of some other achievement or condition.

Happiness is also too varied to teach: a single set of tools will not work for everyone. One pupil may derive great pleasure from being kind to others - another from being the person on the receiving end of that kindness. Where one childmay be happily fulfilled taking ona tough challenge, another mayfind more happiness with a less driven approach.

Comments welcome. Can we really teach happiness? And should we?

Pupils pay the price of peer presure

Many university students' subject choice is swayed by their peers. But at what price? Giacomo De Giorgi (Stanford), Michele Pellizzari (IGIER-Bocconi) and Silvia Redaelli (Bocconi) find it is quite sizeable, in their new paper Be As Careful of the Books You Read as of the Company You Keep. Evidence on Peer Effects in Educational Choices (PDF). They find that peers’ behavior does have an important and significant effect on the choice of college major:

Using a unique dataset of students at Bocconi University and exploiting the peculiar organization of teaching at this institution, we are able to identify the endogenous effect of peers on such decision, circumventing the crucial identification problems in studies of social interactions.

Results show that, indeed, one is more likely to choose a major when many of his/her peers make the same choice. We estimate that, when it diverts students from majors in which they seem to have a relative ability advantage, this effect leads to lower average grades and graduation mark, a penalty that in the labor market could cost up to 871 euros (1,117 USD) a year.

For those in England, you can catch Michele Pellizzari present the paper next Monday afternoon, 5 March, at an ISER Seminar at the University of Essex.

Bernanke on inequality

It's good to see Fed Governor Ben Bernanke talk today about The Level and Distribution of Economic Well-Being. Not another contribution to the 'happiness debate' - the talk is really about inequality. In this excerpt he propounds the standard skill-biased technical change thesis:

..understanding the sources of the long-term tendency toward greater inequality remains a major challenge for economists and policymakers. A key observation is that, over the past few decades, the real wages of workers with more years of formal education have increased more quickly than those of workers with fewer years of formal education. ...To a significant extent, to explain increasing inequality we must explain why the economic return to education and to the development of skills more generally has continued to rise.

Economists have hypothesized that technological advances, such as improvements in information and communications technologies, have raised the productivity of high-skilled workers much more than that of low-skilled workers. ...If new technologies tend to increase the productivity of highly skilled workers relatively more than that of less-skilled workers--a phenomenon that economists have dubbed "skill-biased technical change"--then market forces will tend to cause the real wages of skilled workers to increase relatively faster. Considerable evidence supports the view that worker skills and advanced technology are complementary.

Buit it doesn't explain all recent trends:

Although skill-biased technical change appears to be an important cause of the rise in earnings inequality, it does not provide a complete explanation for that trend. The hypothesis cannot explain, for example, why the sharp rise in investment in information technology in the 1990s was not accompanied by a higher rate of increase in wage inequality. Nor can it explain why the wages of workers in the middle of the distribution have grown more slowly in recent years than those of workers at the lower end of the distribution, even though, of the two groups, workers in the middle of the distribution are typically the better educated (Autor, Katz, and Kearney, 2006; Autor, Levy, and Murnane, 2003).

As for the policy conclusions, you can probably guess those:

...the challenge for policy is not to eliminate inequality per se but rather to spread economic opportunity as widely as possible. Policies that focus on education, job training, and skills and that facilitate job search and job mobility seem to me to be a promising means for moving toward that goal. By increasing opportunity and capability, we help individuals and families while strengthening the nation's economy as well.

No surprise there. But I was surprised (and disappointed) that he failed to cite the excellent recent paper by fellow FOMC member Janet Yellen, on Economic Inequality in the United States.

India's college problem

Today's New York Times discusses the poor quality of much of India's higher education system: A College Education Without Job Prospects

The job market for Indian college graduates is split sharply in two. With a robust handshake, a placeless accent and a confident walk, you can get a $300-a-month job with Citibank or Microsoft. With a limp handshake and a thick accent, you might peddle credit cards door to door for $2 a day.

India was once divided chiefly by caste. Today, new criteria are creating a different divide: skills. Those with marketable skills are sought by a new economy of call centers and software houses; those without are ensnared in old, drudgelike jobs.

Unlike birthright, which determines caste, the skills in question are teachable: the ability to communicate crisply in clear English, to work with teams and deliver presentations, to use search engines like Google, to tear apart theories rather than memorize them.

But the chance to learn such skills is still a prerogative reserved, for the most part, for the modern equivalent of India’s upper castes — the few thousand students who graduate each year from academies like the Indian Institutes of Management and the Indian Institutes of Technology. Their alumni, mostly engineers, walk the hallways of Wall Street and Silicon Valley and are stewards for some of the largest companies.

In the shadow of those marquee institutions, most of the 11 million students in India’s 18,000 colleges and universities receive starkly inferior training, heavy on obedience and light on useful job skills.

India's engineer shortage

China is not the only booming economy with reports of skill shortages. A piece in today's New York Times by Somini Sengupta, Skills Gap Hurts Technology Boom in India, reports a shortage of engineers - and the scarmble to educate more:

As its technology companies soar to the outsourcing skies, India is bumping up against an improbable challenge. In a country once regarded as a bottomless well of low-cost, ready-to-work, English-speaking engineers, a shortage looms.

India still produces plenty of engineers, nearly 400,000 a year at last count. But their competence has become the issue.

A study commissioned by a trade group, the National Association of Software and Service Companies, or Nasscom, found only one in four engineering graduates to be employable. The rest were deficient in the required technical skills, fluency in English or ability to work in a team or deliver basic oral presentations.

The skills gap reflects the narrow availability of high-quality college education in India and the galloping pace of the country’s service-driven economy, which is growing faster than nearly all but China’s. The software and service companies provide technology services to foreign companies, many of them based in the United States. Software exports alone expanded by 33 percent in the last year.

The university systems of few countries would be able to keep up with such demand, and India is certainly having trouble. The best and most selective universities generate too few graduates, and new private colleges are producing graduates of uneven quality.

Many fear that the labor pinch may signal bottlenecks in other parts of the economy. It is already being felt in the information technology sector. With the number of technology jobs expected to nearly double to 1.7 million in the next four years, companies are scrambling to find fresh engineering talent and to upgrade the schools that produce it.

Some companies are training faculty members themselves, offering courses tailored to industry needs and improving college labs and libraries. They are rushing to get first choice of would-be engineers long before they have completed their course work. And they are fanning out to small, remote colleges that almost no one had heard of before.

The country’s most successful technology concerns can no longer afford to hire only from the most prestigious Indian universities. Nor can they expect recent graduates to be ready to hit the shop floor. Most companies require in-house training of anywhere from two to six months.

Demand is beginning to be felt on the bottom line. Entry-level salaries in the software industry have risen by an average of 10 to 15 percent in recent years. And Nasscom, which helps companies wanting to outsource find workers, forecasts a shortage of 500,000 professional employees in the technology sector by 2010.

The labor crunch is starting to pop up across the service economy. ICICI, the country’s largest financial services company, announced plans to hire up to 40,000 workers in the next three years.

...Reuters reported in October that Google was having trouble finding Indian workers proficient in the languages and design technologies used in the latest generation of Web sites.

This year, India’s largest software company, Tata Consultancy Services, plans to add 30,000 people to its current work force of 72,000.

...In the past, Tata Consultancy Services needed only to turn to the top engineering schools in the country: the nine campuses of the Indian Institutes of Technology and a few others gaining admission can be more difficult than getting into the Ivy League.

...The number of technical schools in India, including engineering colleges, has more than tripled in the last 10 years, according to the All India Council of Technical Education. Most are privately run.

A new kind of institution has emerged to offer intensive English language training and instruction in technical skills required for the workplace for those between college and career. They are called finishing schools, and Nasscom is rolling out its own by early next year.

...Higher education is still available only to a tiny slice of India’s young. No more than 10 percent of Indians ages 18 to 25 are enrolled in college, according to official figures. Nearly 40 percent of Indians over the age of 15 are illiterate.

The industry is lobbying hard to allow private investment in Indian higher education. Right now the government allows only nonprofit ventures, and often they are of varying quality or are the brainchildren of politically connected entrepreneurs.

The Commerce Ministry has recently floated the idea of private foreign investment in higher education. Indians account for among the largest groups of foreign students in the United States, and India increasingly sends students to other countries, like Australia and Canada.

Nandan M. Nilekani, the chief executive of Infosys, one of India’s biggest providers of technology and back-office services to Western companies, calls the situation a crossroads for his country.

With more than half of its population under 25, he said, India could educate its young and open job opportunities for them, or be left with a large, potentially restive pool of unskilled, unemployable youth. “It is a golden opportunity,” he said, “which can be frittered away if we don’t do the right thing.”