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B45, Second Half - The Technology of Skill Formation 1 The Economics of the Public Sector – Second Half Topic 6 – Analysis of Human Capital Policies School.

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Presentation on theme: "B45, Second Half - The Technology of Skill Formation 1 The Economics of the Public Sector – Second Half Topic 6 – Analysis of Human Capital Policies School."— Presentation transcript:

1 B45, Second Half - The Technology of Skill Formation 1 The Economics of the Public Sector – Second Half Topic 6 – Analysis of Human Capital Policies School Quality

2 B45, Second Half - The Technology of Skill Formation 2 SCHOOL QUALITY There is a large debate about the importance of school resources on student outcomes. The most commonly suggested school quality reforms are class size reductions, institution of summer school programs, and increases in teacher salaries and per student expenditures.

3 B45, Second Half - The Technology of Skill Formation 3 Usually it is hard to find large effects of school resources on students outcomes, at least large enough to compensate the costs of such investments. However, this is a controversial area of research, both in the US and the UK. For example, Dearden, Ferri and Meghir (2002) find no effects of school pupil teacher ratios in adult mens schooling and earnings in the UK.

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6 6 However, they do find a very large effect of the pupil teacher ratio at 16 on females wages at 33.

7 B45, Second Half - The Technology of Skill Formation 7 It may be that pupil teacher ratios are already small to start with and further reductions may not have much of an effect. Policies should always be analyzed relative to the current state of affairs. The same policy may have very different impacts in different countries.

8 B45, Second Half - The Technology of Skill Formation 8 Using the same dataset, Dustmann, Rajah and Soest (2003) argue that there is a strong effect of class size on post- compulsory schooling attendance, which then has an important effect on wages.

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10 10 Which paper shows the most accurate estimates? It is hard to say. However, even if Dustmann et al (2003) are correct one needs a careful cost benefit analysis of the policy (costs include things such as additional teachers and classrooms). Dustmann et al (2003) in that reducing class size may be a good investment:

11 B45, Second Half - The Technology of Skill Formation 11 The debate on the effects of class size in the US as much or even more controversial, although there is a clean experiment that can be analyzed: STAR. Project STAR was an experiment in which 11600 students and their teachers were randomly assigned to small- and regular-size classes during the first four years of school. This program was evaluated by many researchers, notably Alan Krueger.

12 B45, Second Half - The Technology of Skill Formation 12 Krueger (2002) presents a summary of his findings on the STAR experiment.

13 B45, Second Half - The Technology of Skill Formation 13 Krueger (2003) argues that if we assume that a standard deviation increase in test scores increases earnings by 8% we obtain reasonable rates of return for reduction in class size from 22 to 15 in grades K-3.

14 B45, Second Half - The Technology of Skill Formation 14 At face value, these findings suggest that reductions in class size is a potentially effective policy. However, generalization of these results requires some care, as does the generalization of results of any experiment. The reduction in class size in STAR was very large and only done over a few grades. Furthermore, the link between test scores and earnings may be much weaker than the one assumed by Krueger.

15 B45, Second Half - The Technology of Skill Formation 15 On the other end of the debate, Hanushek (2003) argues that increases in school resources are not an effective way to improve school quality, especially if incentives in schools are neglected.When he analyzes different studies of the effect of school quality he fails to find a consistent pattern showing that school resources improve student outcomes. Krueger (2003), on the other end, claims that Hanusheks methodology is not valid. The debate is far from settled.

16 B45, Second Half - The Technology of Skill Formation 16 Hanushek (1999) also shows that even though school resources have improved dramatically in the US the performance of students has not changed substantially.

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20 B45, Second Half - The Technology of Skill Formation 20 Furthermore, across countries he fails to find a systematic relationship between investments in schools and student performance in international tests.

21 B45, Second Half - The Technology of Skill Formation 21 Carneiro and Heckman (2003) take some of the most optimistic estimates of the effect of school resources on labour market outcomes of individuals, from a study by Card and Krueger (1992), and compute the net present value of school resources policies under different assumptions. Card and Krueger (1992) estimate a 1-4% increase in earnings from a decrease in the pupil-teacher by 5 pupils per teacher.

22 B45, Second Half - The Technology of Skill Formation 22 Only if we take very high-end estimates of the effect of schooling quality on earnings and discount costs by a very low rate do we find any sizeable positive effect of schooling quality on future earnings.

23 B45, Second Half - The Technology of Skill Formation 23 This debate is far from settled. Both in the US and the UK there is some controversy surrounding very basic questions: Are there strong effects of school resources on student achievement? Are there strong effects of school resources on labour market outcomes of individuals? Can we say that policies that increase school resources are cost effective?

24 B45, Second Half - The Technology of Skill Formation 24 It seems odd to say that school quality has no effect on students outcomes. In fact, researchers agree that one component of school quality, TEACHERS, matter dramatically for students learning outcomes (Hanushek, Kain and Rivkin, 1998). Unfortunately there is not a clear idea of what makes a good teacher, or how can we design policies that create good teachers.

25 B45, Second Half - The Technology of Skill Formation 25 Evidence for Developing Countries Conditional Cash Transfers – Progresa (Mexico) If children attend school and health clinigs their families are entitled to cash grants. School enrollment increases by 3.4%. Similar programs now exist in several other countries. Free School Meals – Kenya Preschools Enrollment increased by 30%. Uniforms+Free Books+Classroom Construction – Kenya The only component with any impact on attendance was provision of uniforms. Deworming – Kenya School participation increased for treated students, but also for their classmates in the same school, and even other students in nearby schools.

26 B45, Second Half - The Technology of Skill Formation 26 Flip Charts – Kenya No impact. Remedial Teaching – India Hire women from community to teach basic literacy and numeracy to children with low achievement levels. Large test score gains. Teacher Incentives – India Large reductions in teacher absence Computer Assisted Learning – India Large increase in math knowledge

27 B45, Second Half - The Technology of Skill Formation 27 There are two important lessons from the experiments in the developing world. 1) Costs Matter – Reducing the cost of school by providing a conditional cash transfer, or by providing uniforms, has important effects on attainment. However, the effects on achievement (learning) are often quite low… 2) Perhaps the reason why learning is so slow is because teachers have low quality. In fact, two interventions that improved teaching quality had large effects on achievement.

28 B45, Second Half - The Technology of Skill Formation 28 Carneiro and Heckman reading of the debate (for the US) is the following: Although the effects of schooling quality vary across environments and additional funding for some schools may be justified, marginal improvements in school quality are likely to be ineffective in raising lifetime earnings and more fundamental changes are required if we hope to see a significant improvement in our educational system. So: what are these fundamental changes? Economists have argued that these are fundamentally changes in incentives of teachers and principals.

29 B45, Second Half - The Technology of Skill Formation 29 SCHOOL CHOICE In most countries state schools are local monopolies with few competitors, since individuals have to attend the state school of their area of residence. Even though there may exist many good professionals in all these schools, the incentives of many principals and teachers to produce knowledge are weak. They are not accountable to anyone because it is not easy to monitor them.

30 B45, Second Half - The Technology of Skill Formation 30 One valuable source of information – parental and student perception of qualities of teachers and schools – is rarely used to punish poor teaching. It is possible to opt out of the state school system by choosing to attend a private school, but this often comes at a high cost (payment of tuition fees).

31 B45, Second Half - The Technology of Skill Formation 31 In the US, inner-city schools present the most difficult problems. Students in these schools show low achievement. It is hard to attract teachers to these schools where students are low achieving, unmotivated, and the environment is poor and often violent.

32 B45, Second Half - The Technology of Skill Formation 32 Derek Neal (1997) studies the effects of Catholic schools on the achievement of individuals in the US. He finds that there is no difference in the achievement of suburban students attending Catholic and state schools. However, there are large difference between inner-city African-Americans and Hispanics attending Catholic and state schools. Opting out of the state schooling system only has an effect where this system is providing very low quality services: inner- city schools.

33 B45, Second Half - The Technology of Skill Formation 33 Lack of school choice seems to hurt mostly children from inner-city schools who cannot opt out from the inner-city state schools.

34 B45, Second Half - The Technology of Skill Formation 34 School choice has been advocated as a reform to improve the quality of educational services for students. Proponents of school choice argue that competition among schools to attract students will force schools to decrease costs and increase the quality of services provided. Additionally, by having parents actively choose the schools attended by their children, school choice systems would likely increase the degree of parental involvement in childrens schooling.

35 B45, Second Half - The Technology of Skill Formation 35 Opponents of school choice argue that increased competition among schools will lead to increased stratification and inequality among students as well as a dilution of basic schooling standards and that poor parents lack the information and the ability to make informed decisions for their children. Hence, school choice systems would be most beneficial to those already able to exercise choice in the current system (the richer families). However, Derek Neal (2002) argues that it is possible to design school choice systems with different features that will lead to very different outcomes. The above debate may be too simplistic.

36 B45, Second Half - The Technology of Skill Formation 36 What is the evidence? The evidence on this topic is growing, but it is controversial, and the debate is often more political than scientific. One of the most influential papers in this area is by Hoxby (2000), who claims that schools in districts with more competition perform better.

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38 B45, Second Half - The Technology of Skill Formation 38 Gibbons, Machin and Silva find small effects of competition among English Schools, except for students in faith schools. Students from non-faith schools do not benefit from larger competition from other schools. Students from faith schools benefit from competition from other faith schools.

39 B45, Second Half - The Technology of Skill Formation 39 Cullen, Jacob and Levitt (2000) find that increased choice in Chicago led to a dramatic increase in sorting of students by ability across schools. Motivated and high achieving students were able to choose the school they wanted to attend. Less motivated students did not take advantage of this choice. Bayer and McMillan analyze the effects of competition in the San Francisco Area and they find strong and large effects.

40 B45, Second Half - The Technology of Skill Formation 40 One could argue that choice does not have strong effects because parents do not value school effectiveness. Indeed, that is precisely the finding of Rothstein: parents value peers rather than effectiveness of schools. Sandra Black, and Gibbons and Machin find that parents are willing to pay a premium for living close to a good school, although this premium is not very high: 1 standard deviation increase in test scores is associated with a 2% increase in house prices.

41 B45, Second Half - The Technology of Skill Formation 41 The longest school choice program implemented at a national scale is in Chile. However, it is hard to evaluate the effect of such a program in school performance in Chile because there is no available data on school performance for the years prior to the implementation of the program. In Chile there are tuition charging private schools, but there are also free private schools (subsidized by the government) that compete with state schools, which also compete amongst themselves.

42 B45, Second Half - The Technology of Skill Formation 42 Test scores at the school level are publicized so that parents can compare schools when deciding which one to choose. Parents can place their children in any school in Chile regardless of place of residence, as long as there are enough vacancies.

43 B45, Second Half - The Technology of Skill Formation 43 Chile has seen a dramatic increase in private schooling and today about 50% of the students attend private schools. Annual spending on education as a percentage of GDP is as high as in any developed country. Nevertheless, a convincing evaluation of the program is still to be done. Recently, voucher experiments have been conducted in several different cities of the US, including Milwaukee, Cleveland, Minneapolis, Washington, Dayton and New York. Some of them have been evaluated.

44 B45, Second Half - The Technology of Skill Formation 44 Petersen, Wolf, Howell and Campbell (2002) analyze the experiments in Dayton, Washington and New York. They only find consistent positive effects of the program on achievement for African- Americans in New York.

45 B45, Second Half - The Technology of Skill Formation 45 Krueger and Zhu (2002) reanalyze this data and show that it has severe attrition problems and does not correctly account for family background variables. Their findings, which correct for these problems, show no significant impact of the program on achievement

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47 B45, Second Half - The Technology of Skill Formation 47 However, a robust finding reported by Peterson, Wolf, Howell and Campbell (2002) is that choice improves parental satisfaction with several aspects of the school, as well as school quality in different dimensions, and parent-school communication. Whether these are indicators of improved school quality or not with impact on students outcomes is still subject to scrutiny.

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52 B45, Second Half - The Technology of Skill Formation 52 There is also a voucher program in Colombia, analyzed by Angrist et al. The authors find strong effects on achievement of access to vouchers.

53 B45, Second Half - The Technology of Skill Formation 53 In summary, some state schools seem to perform poorly. These tend to be located in the inner-city and serve the poorest children in the population. State schools are basically local monopolies that face little competition and weak incentives to attract students and teach them useful skills.

54 B45, Second Half - The Technology of Skill Formation 54 Furthermore, as in most public bureaucracies, teachers pay is not based on performance or on their ability to teach skills that are on high demand. Competition across schools is likely to provide better incentives for both teachers and principals, and improve school quality.

55 B45, Second Half - The Technology of Skill Formation 55 However, there does not exist (yet) decisive evidence that competition improves school quality and learning outcomes of students, at least on observed measures such as test scores, although an option out of the state inner-city school system seems to be of very large value. The stronger conclusion of the voucher experiments seems to be that parents with access to choice show a higher degree of satisfaction with their schools than parents without access to choice. The evidence on student sorting is also mixed.

56 B45, Second Half - The Technology of Skill Formation 56 Furthermore, as Neal (2002) argues, it can be very difficult to provide incentives for good performance in schools (and in other public bureaucracies). The reason is that there are multiple dimensions people care about and at the same time most measurements are in only one of these dimensions: test scores. Moreover, these measurements are often very imperfect (are these test scores adequate measures of cognitive achievement?).

57 B45, Second Half - The Technology of Skill Formation 57 Performance-pay based of teachers based on test scores can create bad incentives: - Teaching to the Test - Teacher Cheating Jacob and Levitt (2002) find that teachers in 4-5% of Chicago elementary school classrooms change their students test answers to mask a poor performance of their classroom. Pay based on class performance increases the incentives to teach better, but also increases the incentives to teach. Therefore reforms in incentive structures in schools should be paired with increased monitoring of teachers behavior.

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