Recent Topics in Economics of Education

and Personnel Economics

Introductory meeting
Prof. Dr. Stefan C. Wolter
Dr. Samuel Mhlemann

Recent Topics in Economics of Education and Personnel Economics - Introductory meeting

Requirements
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The seminar participants are expected to be Master students.

Successful completion of the course Einfhrung in die
Bildungskonomie (Prof. Wolter) or Economics of
Personnel and Training (Dr. Mhlemann) required for
Bachelor students.
Each student will prepare a term paper of approximately 15
pages (in English or German)
Power point or slide presentation of 15 minutes (in English)
Discussion of the presentation of another participant
(5 minutes)
If more than one participant is interested in one paper, then
the paper will be allocated at random.
The paper which has to be discussed will be allocated after
the decision on the paper topics is made.

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Recent Topics in Economics of Education and Personnel Economics - Introductory meeting

Grades
Participants are expected to attend at all presentation
sessions and to take part in discussions.
> Successful participation in the seminar results in a graded
certificate worth 6 ECTS.
> The grade depends on
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quality of the term paper (70%)

presentation, including discussing another paper, and
participation in discussions (30%).

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Recent Topics in Economics of Education and Personnel Economics - Introductory meeting

Seminar paper
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Approximately 15 pages

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3 main parts:
a) Description, analysis and critique of the paper
(60% of the length of the paper)
b) Paper in the light of other literature (30%)
c) Relevance and applicability to Swiss context (10%)

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Recent Topics in Economics of Education and Personnel Economics - Introductory meeting

List of Papers
Seven topics in economics of education and personnel
economics:
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Compulsory schooling (3)

Upper secondary level (3)
Tertiary education (2)
Returns to education (3)
Hiring (4)
Training (3)
Performance measurement and incentives (4)

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Recent Topics in Economics of Education and Personnel Economics - Introductory meeting

Compulsory schooling
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Joshua D. Angrist & Victor Lavy, 1999. "Using Maimonides'

Rule To Estimate The Effect Of Class Size On Scholastic
Achievement," The Quarterly Journal of Economics, MIT
Press, vol. 114(2), pages 533-575.

Question: Class size and pupils performance

> Problem: Class size is not always exogenous
> Method: Regression-discontinuity design using the
Maimonides rule of maximum class size
> Results: Class size reduces student performance but not in
all grades
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Recent Topics in Economics of Education and Personnel Economics - Introductory meeting

18/10/2011

Recent Topics in Economics of Education and Personnel Economics - Introductory meeting

Compulsory schooling
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Bnabou, Roland & Kramarz, Francis & Prost, Corinne,

2009."The French Zones D'Education Prioritaire: Much
Ado About Nothing?,"Economics of Education Review 28,
pages 345356.

Question: Pupils in problem regions need more educational

resources to perform similarly to students in other regions
> Problem: How can we measure the impact of additional
resources if only students with potentially poor results get the
extra resources
> Method: Instrumental variable approach
> Results: Additional resources had no impact at all
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18/10/2011

Recent Topics in Economics of Education and Personnel Economics - Introductory meeting

Compulsory schooling
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Eric A. Hanushek & Ludger Wssmann, 2006."Does

Educational Tracking Affect Performance and Inequality?
Differences- in-Differences Evidence Across Countries,"
Economic Journal, vol. 116(510), pages C63-C76.

Question: Many school systems track pupils very early into

ability based separated educational streams
> Problem: Equity issues if allocation to tracks is based on
socio-economic background or school quality is different
> Method: Difference-in-difference method comparing country
results prior (primary schooling) and after (secondary
schooling) tracking.
> Results: Early tracking increases educational inequality
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Recent Topics in Economics of Education and Personnel Economics - Introductory meeting

Upper secondary level

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Ofer Malamud & Cristian Pop-Eleches, 2010."Vocational

Training versus General Education: Evidence from an
Economy in Transition," Review of Economics and
Statistics, Vol. 92, No. 1: 4360.

Question: Does vocational education lead to inferior labour

market outcomes than general education.
> Problem: People going into vocational education are not the
same as the ones following general education (ability
selection)
> Method: Econometric identification for causal analysis uses
the discontinuity before and after the introduction of a general
educational reform in Romania (1973)
> Results: Differences are mainly due to selection
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Recent Topics in Economics of Education and Personnel Economics - Introductory meeting

Upper secondary level

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Krister Sund, 2009."Estimating peer effects in Swedish

high school using school, teacher, and student fixed
effects," Economics of Education Review, 28 (3), 329-336.
Question: What is the effect of peer achievement on student
performance.
Problem: Selection problem if placement in school is nonrandom, unobserved teacher and student characteristics.
Method: Panel data allow to control for unobservable
teacher-specific components and well as selection effects
(data show variation in teacher and peers across subject)
Results: Peer effects are stronger for low-performing
students that benefit the most from having high-performing
peers in the class room. Peer effects depend positively on the
heterogeneity in peer achievement.

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Recent Topics in Economics of Education and Personnel Economics - Introductory meeting

Upper secondary level

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Renna, Francesco, 2008."Teens' alcohol consumption and

schooling," Economics of Education Review, 27 (1), 69-78

Question: Does drinking have a negative effect on academic

performance (drop out, or GED instead of graduating high
school)?
> Problem: (Binge-)Drinking is endogenous, affected by
unobserved factors, such as time preferences, that also affect
the level of educational attainment.
> Method: Ordered Probit/Two-stage probit (variation in
Mandated Legal Drinking Age is used as IV for drinking).
> Results: One additional episode of binge-drinking per month
reduces prob(graduating high school) by 8%-points.
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Recent Topics in Economics of Education and Personnel Economics - Introductory meeting

Tertiary education
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Cappellari, Lorenzo & Lucifora, Claudio, 2009."The Bologna

Process and College Enrolment Decisions," Labour
Economics 16, 638647.

Question: What is the effect of the Bologna-reform on

educational attainment in Italy?
> Problem: Selection-issues as ability of those enrolling after
the reform might differ from those enrolling before. Presence
of cohort and macroeconomic trends.
> Method: Before-and-after Bologna-reform pooled survey
data (1998/2001).
> Results: Bologna-reform increased enrollment in tertiary
education in Italy by 15% (for similar individuals). Effect is
largest for good students from less advantaged households.
They also find a small negative effect on university drop-out.
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Recent Topics in Economics of Education and Personnel Economics - Introductory meeting

Tertiary education
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Christine Neill, 2009."Tuition fees and the demand for

university places," Economics of Education Review, 28 (5),
pages 561-570.

Question: What is the effect of tuition fees on university

enrollment?
> Problem: Tuition fees are endogenous
> Method: Use changes in political party in power to identify
exogenous changes in tuition fees.
> Results: 1000 $(CAN) increase in tuition fees reduces
enrollment by 2.5 - 5 percentage points. Effect is smallest for
children from most advantaged families. University enrollment
in Canada (2002) would be at least 24% rather than 19% if no
changes in tuition fees had been made.
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Recent Topics in Economics of Education and Personnel Economics - Introductory meeting

Returns to education
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Moretti, Enrico, 2004."Estimating the social return to

higher education: evidence from longitudinal and
repeated cross-sectional data," Journal of Econometrics,
vol. 121(1-2), pages 175-212.

Question: What is the social return to education?

> Problem: Own wage is increased by working with other higheducated colleagues, but this might be endogenous (other
factors can affect this share as well as wages, e.g., location)
> Method: (i) Fixed-effects (individuals/city) (ii) estimated
productivity shocks (iii) IV (age/land-grant colleges)
> Results: A one percentage point increase in the share of
college graduates raises high school drop-outs wages by
1.9%, high school graduates wages by 1.6% and college
graduates wages by 0.4% (beyond private return!).
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Recent Topics in Economics of Education and Personnel Economics - Introductory meeting

Returns to Education
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Colm Harmon & Hessel Oosterbeek & Ian Walker, 2003."The

Returns to Education: Microeconomics," Journal of
Economic Surveys, 17(2), pages 115-156.

Question: What are rates of return to education (and its

microeconomic foundations)?
> Problem: Schooling is endogenous.
> Method: Meta-Analysis
> Results: Rates of return to education average 6%
internationally (OLS) but >9% (IV). Higher IV estimates may
reflect that identification depends on subgroups (school
reforms often affect those putting the least value on
education, which may have high time preferences)
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Recent Topics in Economics of Education and Personnel Economics - Introductory meeting

Returns to Education
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Hartog, Joop & Vijverberg, Wim P.M., 2007."On

compensation for risk aversion and skewness affection
in wages," Labour Economics, Elsevier, vol. 14(6), pages
938-956.

Question: Higher wage variation increases wage risk.

Conform to theories of the economics of finance, higher risk
should be associated with higher wages. But what happens if
the risk comes from a higher skewness of wages?
> Method: Empirical and theoretical analyses
> Results: For men, wages rise with occupational earnings
variance and decrease with skewness, for women only the
negative effect of skewness is significant
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Recent Topics in Economics of Education and Personnel Economics - Introductory meeting

Hiring
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James W. Albrecht & Jan C. van Ours, 2006. Using

Employer Hiring Behavior to Test the Educational
Signaling Hypothesis, Scandinavian Journal of Economics,
vol. 108(3), pages 361-372.

Question: How important is employee signaling in formal vs.

informal recruitment channels?
> Method: Survey of Dutch firms, information on job
characteristics before hiring, on the hiring channel and the
firms success in filling vacancies.
> Results: Firms using informal recruitment channels are more
likely to adjust the required signal (education level)
downwards.
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Recent Topics in Economics of Education and Personnel Economics - Introductory meeting

Hiring
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Marc Blatter, Samuel Mhlemann & Samuel Schenker

(2011). The Costs of Hiring Skilled Workers, European
Economic Review, doi: 10.1016/j.euroecorev.2011.08.001

Question: How high are hiring costs of skilled workers, what

is the structure of these costs and what are their
determinants?
> Problem: Infer hiring cost structure (marginal hiring costs)
from observing average costs.
> Method: OLS
> Results: Average hiring costs in Switzerland range between
10-17 weeks of wage payments. The structure of hiring costs
is convex.
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Recent Topics in Economics of Education and Personnel Economics - Introductory meeting

Hiring
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Edward Lazear, 1995. Hiring Risky Workers, NBER

Working Paper No. 5334.

Question: Should a firm hire risky workers?

> Problem: Productivity of the worker is unknown ex-ante.
> Method: Theoretical analysis.
> Results: There must be a firm-specific component to risk,
such that it is worthwhile for a firm to hire a risky worker (the
initial firm must have some advantage over other firms so that
the worker can be retained if he turns out to be good, e.g.,
mobility costs). Pay for risky workers is higher than for safe
workers (option value). General variance in ability provides no
option value.
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Recent Topics in Economics of Education and Personnel Economics - Introductory meeting

Hiring
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Michael Siegenthaler, 2011.Can a standardized aptitude

test predict training success of apprentices? Evidence
from a case study in Switzerland, Empirical Research in
Vocational Education and Training vol. 3(2), forthcoming.

Question: How well can a standardized aptitude test predict

the behavior of trainees (grades, drop-out probability)?
> Method: Uses data on test scores and individual success in
apprenticeship from a large retailer in Switzerland.
> Results: Standardized aptitude tests do not provide
significantly more information than school grades.
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Recent Topics in Economics of Education and Personnel Economics - Introductory meeting

Training
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David H. Autor, 2001."Why Do Temporary Help Firms

Provide Free General Skills Training?," The Quarterly
Journal of Economics, vol. 116(4), pages 1409-1448.

Question: Why are temporary help firms willing to pay for

general skills (computer training)?
> Problem: Asymmetric information about ability of job
applicants ex-ante.
> Method: Theoretical and empirical analysis (IV/ Fixed
effects).
> Results: Firms are willing to pay for training to induce selfselection of workers (of high ability), as workers can signal
high productivity through training, and are willing to initially
accept lower wages after training.
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Recent Topics in Economics of Education and Personnel Economics - Introductory meeting

Training
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Edward P. Lazear (2009). Firm-Specific Human Capital: A

Skill-Weights Approach, Journal of Political Economy, vol.
117(5), pages 914-94

Question: Why do firms pay for general training?

> Problem: Economic theory suggests that firms never pay for
general human capital if labor markets are competitive but
in practice firms are willing to pay for general skills.
> Method: Theoretical analysis of optimal skill mix, where each
skill is general.
> Results: All skills are general, but the mix of several general
skills can be firm-specific, if labor markets are thin, thereby
giving firms incentives to pay for general training.
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Recent Topics in Economics of Education and Personnel Economics - Introductory meeting

Training
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Stefan C. Wolter & Samuel Mhlemann & Jrg Schweri,

2006."Why Some Firms Train Apprentices and Many
Others Do Not," German Economic Review, vol. 7, pages
249-264.

Question: If training apprentices is profitable for training

companies, why do not all firms train?
> Problem: How can we calculate the training cost of a nontraining firm?
> Method: Econometric identification with a selection model
> Results: Non training firms are not training because training
would not be profitable for them
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Recent Topics in Economics of Education and Personnel Economics - Introductory meeting

Performance measurement and

incentives
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Oriana Bandiera, Iwan Barankay & Imran Rasul, 2007.

Incentives for Managers and Inequality Among Workers:
Evidence from a Firm-Level Experiment, Quarterly Journal
of Economics, vol. 122(2), pages 729-773.

Question: What is the effect of performance pay for

managers on the productivity of lower-tier workers (fruit
pickers)?
> Problem: Counterfactual is typically not observable.
> Method: Firm-level experiment. Managers received fixed pay
in one period, and performance bonus (based on average
worker productivity) in the second period.
> Results: Performance pay for managers increases both the
mean and the variance of worker productivity.
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Recent Topics in Economics of Education and Personnel Economics - Introductory meeting

Performance measurement and

incentives
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Victor Lavy, 2002."Evaluating the Effect of Teachers

Group Performance Incentives on Pupils Achievements,
Journal of Political Economy, 1286-1317 .

Question: Can we improve students performance with

financial incentives for teachers or giving schools just more
resources?
> Problem: Identification issues as schools were not allocated
randomly to the programs
> Method: Econometric identification for causal analysis
> Results: Additional resources and financial incentives for
teachers each have a causal effect; but financial incentives
seem to be more cost-effective
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Recent Topics in Economics of Education and Personnel Economics - Introductory meeting

Performance measurement and

incentives
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Edward P. Lazear, 2000. Performance Pay and

Productivity, American Economic Review vol. 90(5), pages
1346-1361

Question: Does performance pay increase worker

productivity?
> Problem: Performance pay is more appealing to more
productive workers.
> Method: Comparison of productivity before and after
introduction of performance pay.
> Results: Productivity increase after the introduction of
performance pay is partly due to a change in the composition
of the workforce, and partly due to increased worker effort.
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Recent Topics in Economics of Education and Personnel Economics - Introductory meeting

Performance measurement and

incentives
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Bruce Shearer, 2004. Piece Rates, Fixed Wages and

Incentives: Evidence from a Field Experiment, The
Review of Economic Studies, vol. 71(2), pages 513-53.

Question: Does piece rate pay increase productivity of tree

planters in British Columbia?
> Problem: Introduction of piece rate pay induces self-selection
of workforce (more able workers find performance pay more
attractive)
> Method: Experiment, performance pay randomly allocated to
treatment group, control group receives fixed pay.
> Results: Performance pay increases productivity by 20%.
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