Saturday, February 23, 2013

Education premiums and disadvantaged groups

A lot of you have probably been hearing about this new study by Dwyer, Hodson, and McCloud suggesting that women earn higher returns to education than men, which is part of the reason that men are more likely to drop out (Greg Mankiw highlights a piece of it here).

This is similar to my findings with Marla McDaniel in our Review of Black Political Economy article on the impact of a high school diploma on employment for youth who did not go on to college (so a completely different segment of the labor market from this work on college). The two big takeaway from the paper were that black high school graduates had comparable employment profiles to white high school dropouts (I had a similar conclusion using a different dataset in this recent briefing paper). But the other notable finding was that although black graduates do worse, the added benefit of graduating is greater than for whites.

It wasn't one of those awesome deal-with-the-endogeneity papers but it had a lot of things that you don't normally have like mental health scores, cognitive ability scores, measures of the quality of home life, etc. Kitchen sink regressions aren't great, but when you start getting at that kind of stuff I feel like the results are more robust. If anything it's an underestimate I'd expect because obviously these students aren't going to the same quality schools.

So this phenomenon seems to be popping up a lot. Why?

One answer is a catch-up-growth kind of convergence story that you could borrow from macro, but I doubt that's a major role since abilities are fairly well controlled for.

I think the answer probably has to do with differential statistical discrimination in the labor market, as laid out in this excellent paper on racial disparities in unemployment by Ritter and Taylor, which really guided a lot of my thinking in writing up the RBPE paper. White workers - particularly young ones without much work history - have an easier time signalling their productivity to white employers than minorities (the same would go for women signalling their productivity to male employers). Statistical discrimination is never a complete strategy in the hiring process but it's likely to be more heavily relied upon when hiring minority workers. So you can think of getting a degree either as jumping to a higher distribution where employers are still using statistical discrimination, or as the higher tail of the distribution getting a better signal out about their productivity. Education doesn't matter as much for white or male workers because more of their signal was already picked out from the noise.


  1. Maybe variance in worker productivity increases as education increases. So if you are hiring highschool dropouts, the best and the worst are roughly equivalent which means racial discrimination is cheap. But among PhDs, the best PhD is orders of magnitude more productive than the worst. So racial discrimination is very costly. So the more educated you are, the more you make discriminating against you costly.

  2. Does the disproportionate nature of the War on Drugs (one of the many ways it is incredibly unjust) explain most of this difference? What is it, one in three black men can expect to be incarcerated at some time in their life (most of these incarcerations related to one or another drug offense)? Since convictions have such a presumably heavy effect on your employment choices, well, you get my point.

    1. I think that explains a chunk of the level differences, but I'm not sure if that explains the gap in returns to education it explains. What mechanism do you have in mind?

      I don't know what share it explains... obviously a big share that's not in question. But crime/gangs flourish because of the lack of economic prospects and they also lead to a lack of economic prospects. It's very tough to pull apart. Regardless - it's obviously a big chunk and fixing the war on drugs would make a big difference.

      That reminds me - I need to post on the recent EconTalk on this.

  3. Well, as we know, young white males are no more or no less likely to use/deal at least marijuana (prolly other drugs too) than young black males, yet the latter are disproportionately effected by the drug laws (and presumably at ages prior to matriculation from high school). So a high school education could be a sign that you successfully avoided what so many other black males didn't avoid and perhaps employers see it that way. Could be that is far fetched.

  4. I haven't listened to that episode because I prefer not to become incredibly forlorn for an entire day afterwards. This entire issue is like a self-inflicted wound that we continue to drive hammer blows into with the knife we first used to make the cut. This bit of what is really low hanging fruit ought to be a national disgrace and I can only imagine what the post-reform world is going to think of a couple of generations who engaged in the enforcement of such laws.


All anonymous comments will be deleted. Consistent pseudonyms are fine.