Testing and the value of education

The idea that educational degrees are just a screening tool has harmed education.  Education clearly produces useful skills like socialization, reading, mathematics, responsibility, communication skills, knowledge of facts, etc.  These are all costly to acquire and social-learning environment (classrooms) reduce the costs to most individual of acquiring them.  The recent vogue for testing is partly an effort to measure how productive schools are.  Unfortunately, the evidence indicates that standardized tests are almost useless at measuring useful skills.  For example, Heckman's research indicates that the GED is almost useless as a screening tool for measuring skills that are useful in a workplace.  Similarly, MBA programs are extremely expensive and we already have an exam to measure MBA-readiness: the GMAT.  But no companies pay a premium for potential employees who have high GMAT scores, so they indicate that they think that the GMAT is useless as a signal of skills. 

ETS has major-field tests in many disciplines, but no graduate schools use them for admission instead of an undergraduate degree .  Nor do companies use them in place of a bachelor's degree.  This indicates that they are nearly useless for employment or grad-school admission in the absence of being accompanied with a bachelor's degree.

In some fields (like math?) an exam might get close to testing actual competence, but perhaps even here it does not accomplish the same thing as an educational degree. 

The big standardized testing companies, American Council on Education (GED), ETS, ACT, and the College Board, could make millions if they could come up with a test to replace the value of a college degree.  For-profit colleges have a similar incentive.  The fact that nobody has come up with one is an indication of the value of standardized testing for measuring useful skills. 

Yglesias » “Illegal Immigrant”

Yglesias » “Illegal Immigrant”:

The increasing militarization of the US-Mexico border has tended to increase the duration of time that Mexicans who come to the US to work illegally spend in our country, but both traditionally and under a saner policy most people who cross the border would probably just go back.
People should remember that not only are wage levels higher in the United States, the price level is higher too. Consequently, the best way for Mexicans willing to migrate to maximize their real wealth is to come to the US to work and then take their money back to Mexico. Temporary labor migration of this kind has traditionally been the goal of most work-oriented border crossing and the easiest way to prevent it from turning into illegal labor and semi-permanent settlement is to create a legal channel.

Does that make any sense?: Statistical discrimination

Does that make any sense?: Statistical discrimination: "The effects of statistical discrimination go beyond the obvious unfairness of judging an individual by his group identity. As economists have realized, there's the possibility that an entire racial group will be stuck in a bad equilibrium. If an employer believes that very few people of a particular race have invested in their job skills, he's likely to discount a good interview or test result from a member of that race as a fluke. Then, realizing that they're unlikely to get a good job anyway, people in that race will not invest in skills, confirming the employer's belief. It's a simple but lethal self-fulfilling prophecy.
Some observers, like Bryan Caplan, argue just the opposite—that statistical discrimination may be self-reversing because it raises the return to education. Caplan points out that the return to education is empirically higher for black students than white ones; he surmises that statistical discrimination makes "counter-stereotypical" behavior particularly valuable. To an extent, I think he's right. The "bad equilibrium" story doesn't seem to lower the returns to obtaining easily observable credentials like college degrees. Perhaps this is because college degrees are such good indicators of competence that they overwhelm negative racial perceptions, or because in a world that erects massive social and economic barriers to obtaining a good education, managing to get a degree as a black student is much more impressive than it is for most white students.

Super-Economy: Simple pictures against bad ideas

Super-Economy: Simple pictures against bad ideas
Unfortunately and despite their rhetoric, the Green Party has a lot of bad economic ideas. One in particular is work sharing, a government regulation that forces everyone to work as standard no more than 35-hours per week. Their idea is that if you force people to work fewer hours, there will be more job for others.

The consensus belief among academic economists is that work sharing does not work.
Unemployment does not arise because there are too many people. It is because there is some imperfection in the market (either policy induces or due to market failure) that causes the market to generally not be able to match jobs to people.

We have to remember that normally in functioning economies, there are very strong forces that create jobs for everyone who wants to work. To illustrate this for non-economists, please allow me to put up a graph with a high "duh" factor (but which really is quite important).

This is the relationship between number of working age adults in 2007 and number of jobs in 2007, for the OECD countries. Source is as usual OECD.


The correlation between potential workers and jobs in the OECD is 0.99!
...
To an economist this is trivial, and just says that there is no connection between employment rate and country size among the OECD countries. But savor the pictures for a moment. They have a profound implication. It means that there are extremely powerful forces in market economies that create jobs for ordinary people, no matter how many people we have, and regardless of if we can perfectly understand these forces.

It is not easy to describe this magic when people demand "where will jobs come from?". You may even sound naive if you say that "the market will take care of it", and refer to history or to the graph above. But in this case what sounds naive is in fact the most profound answer. Empirically, we can observe that the market does seem to take care of creating jobs.

The problems that cause unemployment is never the number of people, it is things like the skill composition combined with wage rigidity, cyclical demand conditions, search friction, taxes and regulations, and market imperfections. None of the core economic forces that create unemployment is affected by permanent work sharing for all workers.

Let me also look at this a little more directly. Here is average hours worked for workers and the unemployment rate, again for OECD, and again for 2007.



There is no statistically significant relationship between the typical workday and unemployment rate (p value 0.52). Countries that have reduces the average hours worked have not been able to achieve lower unemployment rate. Now, correlation is not always causation. Maybe the unemployment rate in France would have been even higher if they worked more hours. But I strongly doubt it.

Matthew Yglesias » Evaluating the North American Union

Matthew Yglesias » Evaluating the North American Union:
it’s hard not to notice that Mexican people, in general, seem to wind up doing much better for themselves when they’re able to relocate and live under American or Canadian institutions. So one of the goals of North American political integration would be for Mexico to begin to be governed by more US/Canadian-style institutions, extending the opportunities that are currently provided only through migration. You might also see more reverse migration, as retirement to Mexico could be a compelling opportunity for American or Canadian senior citizens living on fixed incomes.

World Economic Forum - The India Gender Gap Review

World Economic Forum - The India Gender Gap Review: "The India Gender Gap Review has been released on 9 November by the World Economic Forum"

After the Wall

Matthew Yglesias:

The [Berlin] wall was built to bottle up an incipient revolt—a mass emigration that threatened to expose the Soviet system as inferior to the West, as an oppressive dungeon that its most educated young people yearned to escape. The wall not only blocked those yearnings; it also made clear to the brighter young Soviet and Eastern European leaders that the system itself—the ideological basis of their rule—was suspect, that it could not be sustained, much less compete with the West, without the internal imposition of force.

It’s interesting to reflect that it’s very much still the case that millions of people living in Ukraine and Russia and for that matter Mexico and Mozambique would love to engage in mass emigration to the West and expose the systems under which they live as corrupt and uncompetitive. Indeed, according to Gallup 700 million people would like to migrate permanently to a new country:

But of course the voters of the United States and Canada have no intention of letting as many people show up as might like to come, and the voters of Western Europe have even less desire for this, and those of Japan even less.