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Economics of Education
First EditionMichael Lovenheim; Sarah Turner©2018
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Your synthesis and roadmap for an economics of education policy course.
There are many great research articles, good books, and provocative policy analyses related to the economics of education, but these materials are often written to influence the policy process and not necessarily for you who are still learning the underlying policies and the economic framework. This textbook is intended to give you a foundation for a broad-based course on the economics of education. Its goal is to provide you with an overview of economics of education research: to lay out the evidence as clearly as possible; note agreements, disagreements, and unresolved points in literature; and to help you develop the tools necessary to draw your own conclusions. You’ll be helped along by features including Opening Stories that show you a paradigm of economics concepts through an intriguing story or critical question, Toolbox for explanations on the technical tools you’ll need, and Deep Dive for in-depth analysis of specific research articles.
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Table of Contents
I. Introduction and Background
Chapter 1 Why do Economists Study Education Policy?
Opening Story The US Educational Attainment Gap
1.1 Defining the Economics of Education
What is Education?
What is Economics?
1.2 Studying the Economics of Education
Scientific Method and the Economics of Education
Questions for the Economics of Education
Markets in Education
1.3 What Can Economics Teach Us About Education Policies?
The Different Types of Education Policies
Policies as a Set of Incentives
1.4 The Road Ahead: Objectives and Organization of the Book
Chapter 2 The Structure and History of Education Markets in the US
Opening Story The Education of Benjamin Franklin
2.1 Defining Education Markets
The Levels of Education in the United States
DEEP DIVE: International Schooling Comparisons
Providers in Education Markets
Arguments for the Role of Government and Nonprofits in Education
2.2 The Roles of Government in Education
Regulations and Mandates in Education
Public Funding for Education
2.3 Development of Education Institutions and Attainment in the United States
Mid-19th Century: The Common School Movement
1910-1940: The High School Movement
1940-1975: Expansion at the Postsecondary Level
1975-Today: The Growth in Demand for Skill and the Shift to Market-Based Schooling Policies
Chapter 3 Empirical Tools of Education Economics
Opening Story Why Does College Enrollment Differ by Family Income?
3.1 Descriptive Evidence and the Distinction between Correlation and Causation
DEEP DIVE: Why is it Important to Distinguish Correlation from Causation?
3.2 Randomized Control Trials: The Experimental Ideal
3.3 Nonexperimental Methods
Policy Changes and Difference-in-Difference Estimates
Regression Discontinuity: Examining Sharp Breaks
II. The Foundations of Education Production and Investment
Chapter 4 The Human Capital Model
Opening Story The Education Investment Decisions of Morgan and Stanley
4.1 What is Human Capital?
4.2 The Costs and Benefits of an Education
4.3 Basic Setup of the Human Capital Model
4.4 Present Value Formulation and Educational Investments
4.5 Predictions from the Investment Model of Education
Changes in Direct Costs
Changes in Indirect Costs
Changes in Benefits
4.6 Continuous Schooling Choices
4.7 Why Does Educational Attainment Differ Among Individuals?
People Differ in Their Ability to Finance Direct Costs
People Differ in the Benefits They Receive from Education
Policy Implications of Differences in Attainment
4.8 Conclusions and Questions for Empirical Work
Chapter 5 The Signaling Model: An Alternative to the Human Capital Framework
Opening Story How Would You Hire the Best Workers?
5.1 The Motivation for the Signaling Model
5.2 Setup of the Signaling Model
5.3 Signaling Model Equilibrium
5.4 Signals and Indices
5.5 The Importance of Distinguishing Between the Human Capital and Signaling Models
The Private and Social Returns to Education
5.6 Empirical Evidence on Signaling Models
Distinguishing Between Human Capital and Signaling Models
DEEP DIVE: Estimating the Labor Market Signaling Value of a GED
DEEP DIVE: Estimating the Labor Market Signaling Value of a High School Diploma
DEEP DIVE: Sheepskin Effects in the Returns to Education
Chapter 6 The Returns to Education Investment
Opening Story Is Investing in Education "Worth It?"
6.1 The Difficulty of Estimating the Causal Effect of Education on Earnings
Selection When Ability is One-Dimensional
Selection When Ability is Multi-Dimensional
6.2 Empirical Evidence on the Returns to Educational Attainment
The Mincer Equation
Modern Approaches to Estimating the Private Returns to Schooling
DEEP DIVE: Estimating the Returns to Education Using Data on Identical Twins
DEEP DIVE: Estimating the Returns to Education Using "Random" Variation in Education from Quarter of Birth
6.3 Empirical Evidence on the Social Returns to Educational Attainment
Defining College Quality
6.4 Empirical Evidence on the Private Returns to Education Quality
Defining College Quality
DEEP DIVE: The Returns to Two- and Four-Year Colleges
DEEP DIVE: Estimating the Return to College Quality Using a Regression Discontinuity Design
Chapter 7 How Knowledge is Produced: The Education Production Function
Opening Story Knowledge Production Versus the Production of Computers
7.1 Microeconomics of Production Functions
The Production Function
Choosing Input Levels
DEEP DIVE: Technology in the Classroom: Changing Input Prices and Education Production
The Education Production Function with Many Inputs
7.2 Implications for Education Policy
Different Types of Education Policies
Theoretical Arguments for Different Education Policies
7.3 Challenges to Estimating Education Production Functions
Specifying the Production Process
Choosing the Unit of Analysis
III. Elementary and Secondary Education Policy
Chapter 8. The Financing of Local Public Schools
Opening Story Serrano v. Priest
8.1 School Financing in the United States: Trends and Levels
DEEP DIVE: The Political Economy of Common Core Standards
8.2 Local School Choice: "Voting with your Feet"
The Free Rider Problem
The Tiebout Model
Challenges for the Tiebout Model
Empirical Evidence on Tiebout Sorting
8.3 The School Finance Reform Movement
Local Versus Centralized Financing
Judicial Action and Legislative Response
8.4 Forms of School Finance Centralization and Aid
The Community Budget Constraint
Block and Matching Grants
Actual State Aid Formulas
Paying for School Finance Equalization
DEEP DIVE: "Robin Hood and His not so Merry Plan"
School Finance Reform in Practice
Chapter 9 Does Money Matter? The Effect of Resource and Input-Based Policies
Opening Story The Coleman Report
9.1 The "Hanushek Critique"
The Relationship Between Total Resource Policies and Outcomes
DEEP DIVE: The Relationship Between State Spending and Student Test Scores
Explanations for Small Total Resource Effects
Measurement Problems in Capturing Resource Effects
DEEP DIVE: The Effects of Education Resources on Long-run Outcomes
DEEP DIVE: The Effect of School Finance Reforms on Educational Outcomes
9.2 The Effect of Class Size Reduction Policies
DEEP DIVE: The Difficulty of Running a Social Experiment
DEEP DIVE: Long-Run Class Size Effects
Non-experimental Class Size Studies
Evidence from Policy Variation
DEEP DIVE: The California Class Size Reduction Policy
9.3 Teacher Quality
Value-Added and the Measurement of Teacher Quality
DEEP DIVE: Nonexperimental and Simulation Evidence on the Validity of Value-Added Models
How Much Does Teacher Quality Matter?
The Relationship Between Teacher Quality and Teacher Characteristics
Chapter 10 School Choice: A Market-based Approach to Education Reform
Opening Story The Founding of KIPP Schools
10.1 Economic Theory of School Choice
Matching Student Demand and Local Public Schools
Introducing School Choice Mechanisms
The Supply Side of the Market and School Choice
10.2 School Choice Policies
10.3. Effects of School Choice Policies on Student Outcomes
The Role of Selection in School Choice Studies
DEEP DIVE: The Harlem Children’s Zone
DEEP DIVE: Parental Information about School Quality and Open Enrollment Policies
10.4 The Effect of School Choice Policies on Competition and Traditional Public Schools
Evidence on How School Choice Policies Affect Competition and Traditional Public Schools
Chapter 11 Test-Based School Accountability Programs
Opening Story The Rise of Test-Based Accountability
11.1 Accountability: Measurement, Rewards and Punishment
What is Test-based Accountability?
School Accountability in the United States
DEEP DIVE: The Design of No Child Left Behind
11.2 School Accountability Measures
11.3 Do School Accountability Policies Change Student Performance?
The Effect of School Accountability Policies on Student Achievement
DEEP DIVE: The Effect of the Florida Accountability System on Student Achievement
Effects on the Distribution of Student Achievement
Explaining Achievement Effects: School Responses to Accountability Pressure
DEEP DIVE: How Schools and Teachers Respond to Accountability Pressure
"Unintended" Effects: Evidence of Gaming and Cheating
11.4 Do Student Accountability Policies Change Student Performance?
Chapter 12 Teacher Labor Markets
Opening Story Classrooms without Teachers: The Teacher "Shortage" Problem
12.1 Supply and Demand in Teacher Labor Markets
Teacher Supply, Demand and Wage Schedules
12.2 Who Becomes a Teacher (and Does it Matter)?
The Roy Model and Occupational Choice
Changes in the Composition of Teachers over Time
DEEP DIVE: The Link Between Teacher Wages and Student Outcomes
Teacher Mobility over the Career Cycle
12.3 Teachers Unions
What are Teachers Unions?
A Brief History of the Teacher Unionization and Collective Bargaining Movement
The Structure of Union Contracts
Evidence on the Effect of Unions on School Districts and Students
12.4 Teacher Incentive Pay
The Principal Agent Model
Different Forms of Teacher Merit Pay
Does Teacher Incentive Pay Affect Student Achievement?
12.5 Teacher Certification
DEEP DIVE: The Effect of Teach for America Teachers on Student Achievement
IV. Higher Education Policy
Chapter 13 Market Dimensions of Higher Education
13.1. What do Universities Do?
13.2. The Structure of Higher Education in the United States
13.3. The Financing of Higher Education
Chapter 14 Student Aid Policy and Collegiate Outcomes
14.1. Why is Financial Aid Necessary?
14.2. The Structure of Financial Aid in the US
14.3. The Effect of Financial Aid on Behavior
14.4. Student Debt
Chapter 15 The Economics of College Admission and College Life
15.1. The Economics of College Choice
15.2. Beyond Admission: Outcomes in the Collegiate Years
15.3. College Completion
Appendix: Description of Data Sets Commonly Used in the Economics of Education
1. Large, Nationally-representative Government Surveys
a. Current Population Survey (CPS)
b. US Census and American Community Surveys
2. Longitudinal, Individual-level Datasets
a. National Longitudinal Study of 1972 (NLS72)
b. High School and Beyond (HS&B)
c. National Education Longitudinal Study of 1988 (NELS:88)
d. Educational Longitudinal Study of 2002 (ELS:2002)
e. Early Childhood Longitudinal Study, Kindergarten Class of 1998-99 (ECLS-K)
f. National Longitudinal Survey of Youth 1979 and 1997 (NLSY79, NLSY97)
g. Panel Study of Income Dynamics (PSID)
3. State Administrative Data Sets
b. North Carolina
4. Institutional-Level Data from the Department of Education
a. Integrated Postsecondary Education Data System (IPEDS)
b. Common Core of Data (CCD)
5. National Assessment of Education Progress (NAEP)