Like grandmother, like granddaughter: Education doesn’t change

Posted on by Bridget Ansel

Your family background plays an important role in determining your future. And hundreds of studies prove it. In lieu of the old American “pull-yourself-up-by-your-bootstraps” adage, social scientists have turned their attention to the impact of place, race, gender, and parental income and wealth.

These academics have taken what most people know intuitively—that advantage is passed down through the generations—and scrupulously mined new data to understand the nuances and specific mechanisms through which this process occurs. A new working paper by Sarah Kroeger and Owen Thompson of the University of Wisconsin, Milwaukee, adds to this growing body of research and looks at the educational mobility of women across three generations—those born between the early 1910s and the early 1980s.

The 20th century brought enormous social and demographic change for women, who saw a transformation in many areas. Only 8 percent of U.S. women born in 1930, for example, graduated from college compared to 40 percent of those born in 1980. Not only is this rate of increase large overall, but also exceeded that of men over the same timeframe.

The last century not only saw increased female educational attainment, but also saw women enter the U.S. workforce at a stunning rate. Their rising hours of work and higher incomes provided a boost to the American economy. And as men dealt with stagnant wage growth and falling employment, women’s incomes kept many American families financially afloat. Considering the connection between educational attainment and earnings, it became increasingly important for women to further their studies.

These shifts in education, however, took place amid the United States’ persistent educational inequality, leading the authors to ask whether “large overall increases in female education occurred disproportionately within families that started out with relatively high levels of female schooling.”

The authors analyze a nationally representative sample of roughly 2,000 women born in the early 1980s, comparing their educational outcomes to those of their mothers and grandmothers. Kroeger and Thompson’s work—part of an emerging literature that comprehensively analyzes intergenerational mobility across three generations—concludes that the connection between a grandmother’s and granddaughter’s educational attainment is actually twice as strong as previously assumed. While women became better educated generally speaking, those whose mother and grandmother had advanced relatively far in school saw the greatest educational gains.

The authors suggest a few reasons for this. For one, a woman is more likely to go to college herself if she grew up spending time with her college-educated grandmother (compared to if she did not). Educated grandmothers may spend more time reading to their granddaughters or helping them with their homework. Or they may shape what their granddaughters see as “normal” in terms of education. Alternatively, educated grandmothers may be able to pass along financial and social legacies (such as an Ivy League acceptance letter, or entrance to a prestigious debutante ball) even after they’ve passed away. Contributing to their college fund, or passing along a legacy status to certain colleges or social clubs does not require Grandma to directly interact with her granddaughters.

Demographics could also play a part, as there is a strong correlation between the number of kids a woman has and her education level. Over three generations, grandmothers and mothers with college degrees are underrepresented in the sample, meaning that the majority of the sample is made up of lesser-educated women. But even once they weight the sample to account for this disparity, they find that fertility is not a quantitatively important determinant of educational transmission.

Kroeger and Thompson warn us, however, to take such findings with a grain of salt. They say that even though they could not quantitatively prove anything, they are aware that:

… core demographic processes like marriage, immigration and mortality often vary by education and other measures of socioeconomic status, and it is highly plausible that these processes could influence three-generation transmission. For instance grandmother’s education could affect whether and whom their daughters marry, and in turn the family structure in which their granddaughters were raised or the characteristics of their granddaughter’s fathers.

The authors encourage future work on this topic to consider such demographic factors even though they could not establish a definitive quantitative link.

Regardless, this paper is an important contribution to understanding the specific ways in which advantage is passed from one generation to the next. In particular, better understanding the changing nature of women’s roles over the past generation is important in an era where an increasing number of women are the family breadwinners. This paper and others like it will allow policymakers the level of detail needed to not only boost outcomes for women but for the workforce as a whole.

(Brad Doherty/AP Images for Pearson)

Must-read: Joe Stiglitz: “Why the Great Malaise of the World Economy Continues in 2016”

Posted on by Brad DeLong

Must-Read: Joe Stiglitz: Why the Great Malaise of the World Economy Continues in 2016: “In early 2010, I warned… that… the world risked sliding into what I called a ‘Great Malaise’…

…Unfortunately, I was right: We didn’t do what was needed, and we have ended up precisely where I feared we would… a deficiency of aggregate demand, brought on by a combination of growing inequality and a mindless wave of fiscal austerity. Those at the top spend far less than those at the bottom, so that as money moves up, demand goes down. And countries like Germany that consistently maintain external surpluses are contributing significantly to the key problem of insufficient global demand…. The U.S. suffers from a milder form of the fiscal austerity prevailing in Europe… some 500,000 fewer people are employed by the public sector in the U.S. than before the crisis. With normal expansion in government employment since 2008, there would have been two million more.

The only cure for the world’s malaise is an increase in aggregate demand. Far-reaching redistribution of income would help, as would deep reform of our financial system–not just to prevent it from imposing harm on the rest of us, but also to get banks and other financial institutions to do what they are supposed to do: match long-term savings to long-term investment needs…. The obstacles the global economy faces are not rooted in economics, but in politics and ideology. The private sector created the inequality and environmental degradation with which we must now reckon. Markets won’t be able to solve these and other critical problems that they have created, or restore prosperity, on their own. Active government policies are needed. That means overcoming deficit fetishism. It makes sense for countries like the U.S. and Germany that can borrow at negative real long-term interest rates to borrow to make the investments that are needed…

Must-read: Izabella Kaminska: “Bob Gordon’s Not Getting in Your Driverless Car”

Posted on by Brad DeLong

Must-Read: Izabella Kaminska: Bob Gordon’s Not Getting in Your Driverless Car: “Reading Coyle’s review it’s clear Gordon uses the book to expand in more detail…

…on some of the ideas presented in his October 2015 paper “Secular Stagnation on the Supply Side: U.S. Productivity Growth in the Long Run”… that the days of miracle growth are long gone and that slower growth lies ahead…. There is something different about information-fuelled growth compared to technique-fuelled growth. The former’s advantage for some reason stales more quickly than the latter’s…. Think of it this way: when you had a Blackberry and nobody else did, the competitive advantage associated with having that blackberry felt incredibly beneficial to you. Now that everyone has a smartphone, however, that advantage (namely, being able to work on the go, at home or from your bed) has diminished entirely. What was once an information advantage has in some cases become an information burden because people’s expectations about when, how and where it is appropriate to work have changed entirely…. Fundamentally, Gordon’s core point doesn’t seem to rest on whether we’ve stopped innovating or not, but rather whether innovation is happening fast enough to counter the diminishing returns of past innovation as well as to create entirely new types of returns.

Must-reads: January 13, 2016

Posted on by Brad DeLong

Must-read: Barry Eichengreen: “Reforming or Deforming the Fed?”

Posted on by Brad DeLong

Must-Read: Barry Eichengreen: Reforming or Deforming the Fed?: “We have proposals by Republican candidates Ted Cruz, Rand Paul, and Mike Huckabee…

…to require the Fed to maintain a fixed dollar price of gold. To call these actual proposals is a bit generous…. [Would] the Fed… be obliged to provide gold at this price to all… as before 1933, or only to foreign governments, as between 1945 and 1971….[Could] that obligation could be suspended in an emergency, as in those earlier eras[?] More fundamentally, they fail to… clarify why the Fed should focus on stabilizing the price of this particular metal, rather than on the price of a representative basket of goods and services. Indeed, if the critics focused on the latter, they could give their proposal a name. They could call it ‘inflation targeting.’

Must-read: Paul Krugman: “Bully for Neurotoxins”

Posted on by Brad DeLong
Bully for Neurotoxins The New York Times

Must-Read: Paul Krugman: Bully for Neurotoxins: “The Wall Street Journal has a remarkable editorial titled “The Carnage in Coal Country”…

…accusing President Obama of destroying jobs through his terrible, horrible, no good regulations on coal… ‘40,000 coal jobs… lost… since 2008.’… But what really struck me were… the editorial sneers that we’re ‘still waiting for all those new green jobs Mr. Obama has been promising since he arrived in Washington’… [and] that the editorial simply takes it as a given that any regulation is bad, including regulations on mercury and coal ash…. Mercury is a neurotoxin, which can impair intelligence; other heavy metals can cause cancer and poison people…. In what moral or even economic universe is it obviously wrong to limit emissions of neurotoxins?

The State of the Union: a Rorschach test

Posted on by David Hudson
President Barack Obama delivers his State of the Union address before a joint session of Congress on Capitol Hill in Washington, Tuesday, January 12, 2016. (AP Photo/Evan Vucci, Pool)

Sometimes the truth seems like a Rorschach test. Two people can both look at the same inkblot but where I see a bunny, you see a bulldozer. We’re both right, of course, but we’re also both wrong.

Last night, as President Obama gave his final State of the Union speech, I was struck by how today’s economy seems like that famous inkblot. A large percentage of Americans believe the U.S. economy is performing poorly and that their jobs are seriously in jeopardy. The president looks at the same evidence and sees a strengthening economy.

“We’re in the middle of the longest streak of private-sector job creation in history,” he told Congress and the nation. “More than 14 million new jobs; the strongest two years of job growth since the ‘90s. An unemployment rate cut in half. Our auto industry just had its best year ever. Manufacturing has created nearly 900,000 new jobs in the past six years. And we’ve done all this while cutting our deficits by almost three-quarters.”

This is all true and it is good news. It’s especially so relative to the condition of the U.S. economy eight years ago. In January 2009 when President Obama entered the White House, the economy was shedding jobs at a rate of more than 20,000 per day. About 2.65 million homeowners were estimated to be in default in 2008, up dramatically from around 800,000 in 2005. And the stock market had shrunk by 44 percent from the beginning of 2008 to President Obama’s first inauguration. The economy appeared to be in free-fall.

Decisive action on the part of the President and Congress averted a full-scale economic collapse. But it didn’t prevent a multiplicity of smaller economic crises from happening inside families all across the United States. While there were immediate fixes made to avert a second Great Depression, serious long-term economic problems remain—ones that many Americans are fully aware of.

As President Obama acknowledged, not everyone is benefiting from the strong economic gains. For the past 40 years, our economy has been on an upward march of increasing inequality. The Great Recession and our policy responses to it didn’t change this course. According to the latest data from University of California-Berkeley economist Emmanuel Saez, between 2009 (when the economic recovery began) and 2014 (the latest year for which we have data), the top 1 percent of Americans have taken 58 percent of all economic gains. As of 2014, the bottom 99 percent had recovered just under 40 percent of the losses they suffered between 2007 and 2009.

Economic progress is important, but it must be shared. This is not just about values—although that’s important. Shared prosperity promotes economic stability. A key strength of our economy has always been our middle class. Yet the Pew Research Center reports that the share of Americans that are in middle-income households is at its lowest point since 1971.

As the president pointed out during his speech, the kind of economic security that families crave is more likely seen inside the halls of Congress than on Main Street. What’s more, many families have a nagging sense that the jobs being created aren’t as good as the ones we’ve lost. There’s fear that solid, middle-class jobs aren’t coming back. Some blame globalization or immigrants, but last night President Obama pushed the American people to focus on how “working families won’t get more opportunity or bigger paychecks by letting big banks or big oil or hedge funds make their own rules at the expense of everyone else; or by allowing attacks on collective bargaining to go unanswered.”

How do we give everyone a fair shot at opportunity and security in this new economy? Looking at what’s happening at the top of the income and wealth ladders is a good place to start. Economists are looking into the question of whether those at the top are getting more than their fair share—and they’re finding evidence that this may be the case. Armed with this data-driven research, policymakers can investigate the kind of pro-growth economic policies that may create the kind of economy that looks good to those at the top, the middle, and the bottom of the U.S. wealth and income spectrum.

Heather Boushey is Executive Director and Chief Economist at the Washington Center for Equitable Growth.

Must-read: Chris Dillow: “Innovation and Well-Being”

Posted on by Brad DeLong

Chris Dillow: Innovation and Well-Being: “Diane Coyle and Emily Skarbeck point out that…

…‘the way GDP is measured makes it impossible to capture fully the effect of innovation’ [as] GDP data don’t capture ‘the explosion in variety’…. [But] not only does innovation not appear in the GDP statistics, it doesn’t appear in subjective well-being statistics either. The OECD has reported (pdf) that the UK ‘experienced no consistent change’ in life satisfaction between the mid-70s and late 00s, and the ONS estimates (pdf) no change since then either….

Here are two theories. First… ‘more of the same’ gives us increases in real incomes in a steady environment…. Increases in variety, however, entail creative destruction… generates uncertainty for workers. And many (pdf) people hate uncertainty…. Second… as variety increases, so too does opportunity cost: we can’t afford both the new phone and the PS4, or if we’re holidaying in the Maldives, we can’t be in Dubai. Variety brings with it regret…. I don’t say this to deprecate increased variety…. Intuitively, it seems to me that variety must be a great good…. Perhaps… not only is GDP an inadequate measure of a healthy economy, but so too in some respects are measures of subjective well-being.

What’s happening to the growth of productive new firms?

Posted on by Bridget Ansel

One of the potential drivers of productivity growth is reallocation of labor and capital. Workers moving to new jobs, unproductive firms disappearing, and new firms appearing are supposed to help move resources to their best uses. The misallocation of labor seems to be a big factor underlying the tepid productivity growth in the United States over the past decade. But it also seems that some of the sources of reallocation that once helped boost productivity aren’t working as well as they did in the past.

The new work comes from a number of researchers who together and in smaller groups have documented the decline in the startup rate in the United States, as well as the slowing pace of growth for fast-growing firms.

In their new paper, Ryan Decker of the Federal Reserve Board, John Haltiwanger of the University of Maryland, and Ron Jarmin and Javier Miranda of the U.S. Census Bureau aim to understand what might be causing the decline in business dynamism—the rate at which new businesses are started and destroyed. They look specifically at the trends within the high-tech manufacturing sector, a section of the economy that has micro-level productivity data and experienced declining dynamism over the 2000s.

The authors point to two potential sources of declining dynamism. First, the kinds of productivity shocks that firms experience—such as figuring out a new technique that makes workers more productive—could have changed over time. The authors refer to this as a changing volatility in productivity shocks, which in the context of declining dynamism would mean that firms are experiencing fewer positive productivity shocks. But the economists rule that out once they look at the firm-level productivity data.

The other possibility is that firms are less responsive to the productivity shocks they experience. In other words, a firm may become more productive but its employment growth will be slower than it was in the past. More productive firms, at least in the high-tech manufacturing sector, are contributing fewer jobs than they were in the past. Furthermore, this trend holds up for both young firms and mature firms. If labor reallocation depends on the most productive firms growing faster to provide new more productive jobs, that mechanism doesn’t seem to be working as well post-2000.

This analysis is clearly limited in that it only looks at one sector of the economy, in part due to data limitations. As the authors point out, however, the changing patterns of dynamism for the overall high-tech sector look very similar to the trends for high-tech manufacturing. (If only there were good establishment-level data on total factor productivity for social media companies.)

But the declining productivity growth in a high-tech sector does seem to align with work by John Fernald of the Federal Reserve Bank of San Francisco, who has argued that the productivity decline of the last decade has been concentrated among IT firms and firms that use IT intensively. A provocative thesis to say the least, but given the evidence presented in this paper, it’s something to consider even more.

(AP Photo/Yuri Kageyama)

Must-reads: January 12, 2016

Posted on by Brad DeLong