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Comments on James Heckman's “Policies to foster human capital”
Research in Economics (2000) 54, 57–60 doi:10.1006/reec.1999.0219 Available online at http://www.idealibrary.com on
Comments on James Heckman’s ‘‘Policies to foster human capital’’ RICHARD BLUNDELL† Department of Economics, University College London, Gower Street, London WC1E 6BT, U.K. This paper presents a comprehensive approach to the policy issues surrounding human capital investment. It acknowledges the importance of heterogeneity across types of investment and also heterogeneity across types of people. It considers the importance of market interactions especially with regard to large-scale public subsidies for human capital investment. A central public policy issue in this area is to uncover exactly where there are relatively high returns that are not being fully realized by individuals, their family or society. This relates to the issue of social vs. private returns, but it also relates to the possibility that there are high individual private returns that remain unexploited. The paper draws out four main themes. First, short-run credit constraints and tuition costs are not the critical factor in dissuading disadvantaged families from investing in human capital. Second, at the margin it would be beneficial to shift public investment in human capital from college and beyond to early interventions, using job subsidies to enhance labour market attachment later in life. Third, investment in physical capital can pay-off all the way down the wage distribution. Finally, it is important to incentivize institutions and teachers. It is the issue of early interventions and their effectiveness that is probably most important and controversial. Heckman emphasizes both informal and formal interventions. The critical question is whether there is evidence of a high long-term return to early interventions. It is surprising that there is no thorough review of the evidence on this topic, at least by economists, and it is important that Heckman is focussing on this and gathering what evidence there is together in this paper. In my discussion I want to draw on some evidence in the U.K. that has bearing on the timing of the interventions debate. First, I present evidence which shows that, if † Tel: 44 (0) 171 504 5863. Fax: 44 (0) 171 916 2773. E-mail: [email protected] 1090–9443/00/010057 C 04 $35.00/0
2000 University of Venice
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R. BLUNDELL
credit constraints are important in human capital acquisition, their effects tend to be dominated by ability scores at early ages. This suggests that they may reflect longer-term permanent differences across families. The second set of evidence I present is an attempt to balance the debate somewhat by showing that certain types of late interventions do appear to have some potential. In particular, interventions to improve numeracy, even among teenagers, may have a relatively large pay-off. Finally, I present some evidence of complementarities between formal schooling and the returns to on-the-job training. The case for early childhood development factors being important and dominating short-run financial factors seems convincing. It is a hot policy issue in Europe too. For example, in the U.K. there is an important debate as to the effectiveness of HeadStart style programmes—called Sure-Start in the U.K.—and of financial incentives for staying on at school, the proposed Education Maintenance Allowances. These allowances will provide an income for those studying after the minimum school leaving age. Some evidence on early childhood development can be found in the unique U.K. Birth Cohort Databases. For example, the 1958 cohort of everyone born in a particular week of March 1958, the National Child Development Survey (NCDS) provides detailed schooling, health and family background for each of the panel members, including their wages and employment in work. Using the 1991 wave, which records employment and earnings at age 33, we can examine longer-term payoffs, controlling for early health and family background factors.† Interestingly this data collects information of evidence of financial distress in the family at age 7, 11 and 14. Financial distress at age 11 and 14 is important in earnings and later qualifications but its impact is virtually eliminated by the inclusion of ability scores at age 7. This suggests that later financial distress in the family is correlated with early development and later outcomes, but is not the critical factor in piecing together the factors that generate successful human capital investments in later life. Interestingly, measured ability at age 7 remains an important determinant of earnings later in life even after controlling for later educational outcomes. However, not to get too persuaded by the case that only early interventions matter, an interesting comparison can be made between the U.K., the U.S. and different European and Scandinavian countries. Many continental European countries begin formal schooling a year or more after the U.K. However, even at the lowest education group, the U.K. does not fare well † For a detailed description of the data see Blundell et al. (1997). Also, Dearden (1998), and Dearden, Ferri and Meghir (1998).
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in comparison at 16 and older (see the further discussion below). Such comparisons are difficult, perhaps dangerous, because they ignore all the other interventions that are going on with regard to children’s education and development across these countries. Similarly, the U.K. has had zero tuition costs for college and university with subsidies for living costs for those from lowincome families. However, comparison is difficult since access has traditionally been rationed through the A-level examination system at 18 years of age. A more careful analysis can be made of the impact of formal mathematics and literacy training through to age 18. In the U.K. mathematics training is only required up to age 16.† In comparable tests it seems that U.K. (and U.S.) children at age 13 appear to score rather similarly to those in Germany and Sweden. However, by the age of 17/18 the scores appear to be very different,‡ with less than 50% in the U.K. and the U.S. achieving a level 3 grade in numeracy tests. In Germany and Sweden this number is less than 30%. Entering these test scores in a simple earnings equation on the NCDS data suggests a reasonable return to literacy and numeracy at this level.§ In terms of looking for unrecovered returns, the analysis of this cohort data points to two other interesting issues. Firstly, it suggests a reasonable level of complementarity between formal schooling and later returns to work-related training.¶ Second, firm-based work related to training appears to have a relatively high pay-off for those with some, but not necessarily the highest, schooling qualifications. There will, of course, be other issues relating to the take-up of educational opportunities that reflect information, peer group pressure and risk. The relative riskiness of staying in education vs. taking a lower skilled job offer is not well understood. For a risk adverse family it may take little in the way of an earnings risk after two years of college education to offset the increased returns. At least the issue of the perception of risk among low income households may warrant further work. This goes hand in hand with information flows and peer group effects, especially in low-income neighbourhoods. To conclude this brief discussion, I want to emphasize the importance of Heckman’s wide ranging analysis and thank him for raising so many substantive issues that will set the agenda for research in this area for some time to come. † At age 17 only 27% of British children are involved in formal mathematics training, in comparison to 81% in Germany and 90% in Sweden. ‡ Vignoles and McIntosh (1999). § See Blundell et al. (1997). ¶ Blundell, Dearden and Meghir (1996).
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References Blundell, R.W., Dearden, L. & Meghir, C. (1996). The Determinants and Effects of Work Related Training in Britain. London: The Institute for Fiscal Studies. Blundell, R.W., Dearden, L., Goodman, A. & Reed, H. (1997). Higher Education, Employment and Earnings in Britain. London: The Institute for Fiscal Studies. Dearden, L. (1998). Ability, families, education and earnings in Britain. IFS Working Paper, No.W98/14. Dearden, L., Ferri, J. & Meghir, C. (1998). The effect of school quality on educational attainment and wages. IFS Working paper, No. W98/3. Vignoles, A. & McIntosh, R. (1999). The International Adult Literacy Test. LSE, mimeo CEP.
Comments on James Heckman’s ‘‘Policies to foster human capital’’ RICHARD BLUNDELL† Department of Economics, University College London, Gower Street, London WC1E 6BT, U.K. This paper presents a comprehensive approach to the policy issues surrounding human capital investment. It acknowledges the importance of heterogeneity across types of investment and also heterogeneity across types of people. It considers the importance of market interactions especially with regard to large-scale public subsidies for human capital investment. A central public policy issue in this area is to uncover exactly where there are relatively high returns that are not being fully realized by individuals, their family or society. This relates to the issue of social vs. private returns, but it also relates to the possibility that there are high individual private returns that remain unexploited. The paper draws out four main themes. First, short-run credit constraints and tuition costs are not the critical factor in dissuading disadvantaged families from investing in human capital. Second, at the margin it would be beneficial to shift public investment in human capital from college and beyond to early interventions, using job subsidies to enhance labour market attachment later in life. Third, investment in physical capital can pay-off all the way down the wage distribution. Finally, it is important to incentivize institutions and teachers. It is the issue of early interventions and their effectiveness that is probably most important and controversial. Heckman emphasizes both informal and formal interventions. The critical question is whether there is evidence of a high long-term return to early interventions. It is surprising that there is no thorough review of the evidence on this topic, at least by economists, and it is important that Heckman is focussing on this and gathering what evidence there is together in this paper. In my discussion I want to draw on some evidence in the U.K. that has bearing on the timing of the interventions debate. First, I present evidence which shows that, if † Tel: 44 (0) 171 504 5863. Fax: 44 (0) 171 916 2773. E-mail: [email protected] 1090–9443/00/010057 C 04 $35.00/0
2000 University of Venice
58
R. BLUNDELL
credit constraints are important in human capital acquisition, their effects tend to be dominated by ability scores at early ages. This suggests that they may reflect longer-term permanent differences across families. The second set of evidence I present is an attempt to balance the debate somewhat by showing that certain types of late interventions do appear to have some potential. In particular, interventions to improve numeracy, even among teenagers, may have a relatively large pay-off. Finally, I present some evidence of complementarities between formal schooling and the returns to on-the-job training. The case for early childhood development factors being important and dominating short-run financial factors seems convincing. It is a hot policy issue in Europe too. For example, in the U.K. there is an important debate as to the effectiveness of HeadStart style programmes—called Sure-Start in the U.K.—and of financial incentives for staying on at school, the proposed Education Maintenance Allowances. These allowances will provide an income for those studying after the minimum school leaving age. Some evidence on early childhood development can be found in the unique U.K. Birth Cohort Databases. For example, the 1958 cohort of everyone born in a particular week of March 1958, the National Child Development Survey (NCDS) provides detailed schooling, health and family background for each of the panel members, including their wages and employment in work. Using the 1991 wave, which records employment and earnings at age 33, we can examine longer-term payoffs, controlling for early health and family background factors.† Interestingly this data collects information of evidence of financial distress in the family at age 7, 11 and 14. Financial distress at age 11 and 14 is important in earnings and later qualifications but its impact is virtually eliminated by the inclusion of ability scores at age 7. This suggests that later financial distress in the family is correlated with early development and later outcomes, but is not the critical factor in piecing together the factors that generate successful human capital investments in later life. Interestingly, measured ability at age 7 remains an important determinant of earnings later in life even after controlling for later educational outcomes. However, not to get too persuaded by the case that only early interventions matter, an interesting comparison can be made between the U.K., the U.S. and different European and Scandinavian countries. Many continental European countries begin formal schooling a year or more after the U.K. However, even at the lowest education group, the U.K. does not fare well † For a detailed description of the data see Blundell et al. (1997). Also, Dearden (1998), and Dearden, Ferri and Meghir (1998).
COMMENTS ON JAMES HECKMAN
59
in comparison at 16 and older (see the further discussion below). Such comparisons are difficult, perhaps dangerous, because they ignore all the other interventions that are going on with regard to children’s education and development across these countries. Similarly, the U.K. has had zero tuition costs for college and university with subsidies for living costs for those from lowincome families. However, comparison is difficult since access has traditionally been rationed through the A-level examination system at 18 years of age. A more careful analysis can be made of the impact of formal mathematics and literacy training through to age 18. In the U.K. mathematics training is only required up to age 16.† In comparable tests it seems that U.K. (and U.S.) children at age 13 appear to score rather similarly to those in Germany and Sweden. However, by the age of 17/18 the scores appear to be very different,‡ with less than 50% in the U.K. and the U.S. achieving a level 3 grade in numeracy tests. In Germany and Sweden this number is less than 30%. Entering these test scores in a simple earnings equation on the NCDS data suggests a reasonable return to literacy and numeracy at this level.§ In terms of looking for unrecovered returns, the analysis of this cohort data points to two other interesting issues. Firstly, it suggests a reasonable level of complementarity between formal schooling and later returns to work-related training.¶ Second, firm-based work related to training appears to have a relatively high pay-off for those with some, but not necessarily the highest, schooling qualifications. There will, of course, be other issues relating to the take-up of educational opportunities that reflect information, peer group pressure and risk. The relative riskiness of staying in education vs. taking a lower skilled job offer is not well understood. For a risk adverse family it may take little in the way of an earnings risk after two years of college education to offset the increased returns. At least the issue of the perception of risk among low income households may warrant further work. This goes hand in hand with information flows and peer group effects, especially in low-income neighbourhoods. To conclude this brief discussion, I want to emphasize the importance of Heckman’s wide ranging analysis and thank him for raising so many substantive issues that will set the agenda for research in this area for some time to come. † At age 17 only 27% of British children are involved in formal mathematics training, in comparison to 81% in Germany and 90% in Sweden. ‡ Vignoles and McIntosh (1999). § See Blundell et al. (1997). ¶ Blundell, Dearden and Meghir (1996).
60
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References Blundell, R.W., Dearden, L. & Meghir, C. (1996). The Determinants and Effects of Work Related Training in Britain. London: The Institute for Fiscal Studies. Blundell, R.W., Dearden, L., Goodman, A. & Reed, H. (1997). Higher Education, Employment and Earnings in Britain. London: The Institute for Fiscal Studies. Dearden, L. (1998). Ability, families, education and earnings in Britain. IFS Working Paper, No.W98/14. Dearden, L., Ferri, J. & Meghir, C. (1998). The effect of school quality on educational attainment and wages. IFS Working paper, No. W98/3. Vignoles, A. & McIntosh, R. (1999). The International Adult Literacy Test. LSE, mimeo CEP.