It is not possible to differentiate whether the returns from education are due to human capital growth, or from signaling, from experimental or quasi-

Something to Consider

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2024-11-19 16:00:08

It is not possible to differentiate whether the returns from education are due to human capital growth, or from signaling, from experimental or quasi-experimental evidence. The two will appear identical to each other. In fact, it may not be possible to tell even if we include the rest of the country as a control group.

Before anything else, a genealogy of terms. Human capital is a term for ability. It is commonly indicated by schooling, as being able to complete more schooling indicates it, but it is broader and encompasses all sorts of skills. If the returns from education are from returns to skill, then people getting more education increases social product. This need not mean that subsidizing education is socially optimal, as if each person captures their whole product a subsidy would induce an excessive level of education; nevertheless, it seems reasonable to say that people do not capture all of the social gains, and there are unaccounted for spillovers onto other people. Estimating these spillovers is extremely difficult, unfortunately, and generally finds null results. For starters, the places which have good data tend to have universal education already, which does not substantially vary in amount. What variation we have is generally due to changes in school leaving age, which can only pick up an effect in the amount of education among an incredibly marginal group. Acemoglu and Angrist (2000) use variation in state school dropout laws, and find no spillovers, but they are not able to measure spillovers from education generally. If it is at all difficult for people to ascertain the quality of workers, then you have sufficient conditions for externalities. Production requires multiple steps, and so the returns to skill are dependent upon what other people do. (See Kremer’s O-ring paper for more). The whole reason we think cities exist is that it’s easy to transmit ideas back and forth, and ideas are almost definitionally a positive externality. So, I will say that there are spillovers from having more skilled people, and if you want to argue against that you’ll need darn good evidence.

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