Blankenau Working Papers
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"Admission standards, student effort, and the creation of skilled jobs," with Yuan Gao
- “Early childhood education and intergenerational persistence of earnings,” with Xiaoyan Youderian
"Admission standards, student effort, and the creation of skilled jobs," with Yuan Gao
Abstract: We consider the implications of expanding enrollment through lower standards in a model
with human capital externalities and a market failure. Workers and firms make uncoordinated
investment choices prior to random matching. Investment choices depend on the expected
productivity of the counterpart in production. The setting generates a potential human
capital externality as a more skilled labor force induces more skilled job openings.
Exploiting the externality is complicated by a market failure which may cause some
workers to earn a degree but no skill. We show that beyond a threshold, increased
enrollment through low standards is poor policy. Policies which increase returns to
agents and firms in best matches can improve outcomes.
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“Early childhood education and intergenerational persistence of earnings,” with Xiaoyan Youderian
Abstract: We consider how the timing of government education spending influences the intergenerational persistence
of income. We build a life-cycle model where human capital is accumulated in early and
late childhood. Both families and the government can increase the human capital of
young agents by investing in education at each stage of childhood. Ability in each
dynasty follows a stochastic process. Different abilities and resultant spending histories
generate a stochastic steady state distribution of income. We calibrate our model
to match aggregate statistics in terms of education expenditures, income persistence
and inequality. We show that increasing government spending in early childhood education
is effective in lowering intergenerational earnings elasticity. An increase in government
funding of early childhood education equivalent to 0.8 percent of GDP reduces income
persistence by 9.1 percent. We find that this relatively large effect is due to the
weakening relationship between family income and education investment. Since this
link is already weak in late childhood, allocating more public resources to late childhood education
does not improve the intergenerational mobility of economic status. Furthermore, focusing
more on late childhood may raise intergenerational persistence by amplifying the gap in
human capital developed in early childhood.
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