Tuesday, June 05, 2007

College: The Capital of Human Capital?

KL sends an email observation, with some interesting questions. First, the quote:

"The labor market is placing a greater emphasis on education, dispensing rapidly rising rewards to those who stay in school the longest...The growth in returns to college has generated a predictable response: as the education earnings gap increased, a larger fraction of high school graduates went on to college...Growth in the education level of the population has been a significant source of rising wages, productivity, and living standards over the past century...Higher rates of return on capital are a sign of greater productivity in the economy, and that inference is fully applica-ble to human capital as well as to physical capital. The initial impact of higher returns to human capital is wider inequality in earnings (the same as the initial effect of higher returns on physical capital), but that impact
becomes more muted and may be reversed over time as young men and women invest more in their human capital. We conclude that the forces raising earnings inequality in the United States are beneficial to the extent that they reflect higher returns to invest-ments in education and other human capital."

-- Gary Becker, Nobel laureate and professor at the University of Chicago, and Kevin Murphy, winner of the John Bates Clark Medal and professor at the University of Chicago

[KL's question/point: Although Becker and Murphy are top-tier scholars, they seem to be missing the forest through the trees here. While no one would dispute that there is a general correlation between one's level of education and one's labor market outcome, much of this correlation is spurious, in the sense that more fundamental factors, especially one's biological and family endowment, happen to explain both the education and outcome variables. To the extent that education "causes" outcomes, much of that is due to signaling effects (for which someone else, Michael Spence, won a Nobel Prize) that depend on selective admissions and comparative evaluation, and not the curriculum per se. To the extent that curriculum does play a role, it is there as a rite of passage to a common substrate of knowledge, with real-world apprenticeship and experience responsible for much, if not most, real-world productivity. All of this simply reinforces the point that there are inexorable distributional consequences to initial conditions and path
dependence, regardless of whether Becker and Murphy can get people to "invest more in their human capital."]


I have talked to KL about this, and disagree. He is not ENTIRELY wrong, but "inexorable" is just claiming too much. People who try, who make an effort to receive an education, can improve their social and economic status rather markedly. The signalling argument is correct, but works just as well for highly motivatd people from poor backgrounds.

By making college, and "human capital" generally, more open to all we really are inceasing social mobility. The "substrate of knowledge," the set of analogies and allusions an educated person knows, are important keys to entry into the middle class.

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