Economics
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Item Essays on Economics of Education(2024) Morales Lema, Catalina; Urzúa, Sergio; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)In this dissertation, I use data from Chile to study the determinants of schooling trajectories. Chapters 1 and 2 focus on higher education, Chapter 3 on secondary education, and Chapter 4 on teachers. Chapter 1 explores the role of a socio-emotional ability, self-efficacy, in understanding why students with comparable qualifications transit different college paths. This study is the first of two papers dedicated to studying the role of self-efficacy in the path students follow after high school. This first paper discusses the psychology literature on self-efficacy and how it can be measured. Then, through exploratory factor analysis and rich administrative data from Chile, I show that self-efficacy is a construct different from pure cognitive ability. Finally, I estimate a discrete choice model for the decisions of taking the college admissions test, applying, enrolling, and graduating from college. I find that conditional on cognitive ability, a higher self-efficacy increases the probability of taking the college admissions test, applying, and graduating from college within eight years. Analyzing heterogeneous effects, I find a bigger effect among students from low-SES families, which are precisely the ones with lower base levels of these outcomes. In Chapter 2, I take a step further and explicitly model the role of self-efficacy on the trajectories students follow after high school using a structural approach. I estimate a multi-stage discrete choice model with unobserved heterogeneity to study the role of self-efficacy on college applications, enrollment, and graduation decisions. The results indicate that higher self-efficacy significantly increases the likelihood of taking the college admissions exam and submitting a college application, conditional on cognitive ability. For students who apply, increasing self-efficacy also increases their probability of enrolling in and graduating from college, even more than a comparable increase in cognitive ability. From the analysis of socioeconomic groups, I document that improving students' self-efficacy could reduce the socioeconomic gaps in the percentage of students who take the college admissions test, apply, and enroll in college. These findings suggest that policies oriented to boost students' self-efficacy could alleviate income-related inequalities in access to higher education. Chapter 3 is co-authored with Dr. Daniel Kraynak and Dr. Cristina Riquelme. It investigates how local economic conditions impact human capital accumulation in Chile's copper-producing zones using high-frequency data on copper prices, school attendance, and academic performance. To measure the exposure to copper price volatility, we created an index by determining the proportion of workers in the area associated with the metal mining industry. We performed a difference-in-differences analysis by comparing students in areas with low and high copper exposure during periods of varying prices. The results indicate that increasing copper prices in more exposed areas decreases the quarterly attendance of high school students in the same period. We also find that students compensate for this lower attendance by increasing their attendance in the next quarter. Analyzing test score performance, we find evidence of a positive effect of local economic conditions on students' math performance in the same period. However, this effect is completely offset in the following year. Chapter 4 is co-authored with Dr. Macarena Kutscher, Dr. Cristina Riquelme, and Dr. Sergio Urzúa. It explores the contribution of teachers to student performance in Chile's college admission test (PSU). Our analysis is based on a unique teacher-student matched dataset and decomposition methods. The findings suggest that teachers' performance on the PSU and the characteristics of their educational degrees are significant predictors of students' success. When controlling for students' and predetermined school characteristics, the gap between vouchers and public schools is reduced. Productivity differences emerge as key factors driving the disparities across school types. The analysis underscores the crucial role of teacher-student interactions in shaping student outcomes.Item Essays on Higher Education(2024) Montoya Agudelo, Alejandra; Urzúa, Sergio; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)In this dissertation, I quantify the impact of uncertainty on schooling postsecondary choices, study the returns to higher education degrees, and analyze the effects of policies that intend to reduce college education costs. In the second and third chapters, I employ structural Roy models and data from the National Longitudinal Survey of Youth 1997 to analyze postsecondary schooling decisions, focusing on four- and two-year college paths. These models have three sources of unobserved heterogeneity affecting earnings and decisions: cognitive, socioemotional, and mechanical latent abilities. The second chapter employs a dynamic Roy model to quantify the impact of uncertainty when making postsecondary schooling. While schooling choices maximize expected value, some individuals opt for alternatives that, in hindsight, do not yield the highest ex-post net value due to idiosyncratic shocks affecting earnings and schooling costs that are unknown when decisions are made. This uncertainty generates significant losses: I estimate that aggregate net value would increase by 11% if individuals had perfect foresight. Moreover, I study how decisions would change under perfect foresight and characterize individuals more likely to be affected by uncertainty. I also explore policy simulations to study the effects of an annual two-year college $16,500 subsidy, including the characterization of compliers—those more likely to attain a two-year college degree because of the subsidy. The third chapter analyzes the interplay of observed and unobserved dimensions as determinants of marginal treatment effect (MTEs) through decomposition analysis. We posit a static Roy model with unordered schooling choices. We focus on MTEs as they shape other treatment effects and capture the impact for those responding to minimal incentives. Additionally, we estimate the model separately for women and men, focusing on describing how responses and treatment effects vary between these two groups. We find different ability distributions and returns to ability for women and men. Moreover, we document how different observed characteristics and ability dimensions play different roles in determining the heterogeneity observed in MTEs across both groups. The last chapter investigates the impact of financial aid programs on high-quality private colleges' decisions, leveraging exogenous variation from a large-scale aid program in Colombia, where beneficiaries could only enroll at high-quality colleges. Using a difference-in-differences strategy and data for all private colleges in the country, we find that tuition increased by about 6.9 percent after the government launched the aid policy. We contribute to the literature by analyzing the effect of financial aid programs on tuition for high-quality universities and studying how universities might change other outcomes beyond tuition in response to the policy. We show universities hire more faculty members, keep the student-to-faculty constant, and open new undergraduate programs. Our findings support a narrative where prestigious colleges prioritize their reputation, opting for gradual expansion without compromising quality.Item Essays on Treatment Effects from Multiple Unordered Choices(2021) Galindo Pardo, Camila Andrea; Urzúa, Sergio S; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)I study some of the methodological and empirical challenges associated with estimating treatment effects of one option versus another, in contexts where agents can choose from many alternatives with no clear rank (i.e., one option is no better than the other, for everyone). In particular, I focus on educational decisions throughout the life-cycle, such as parental choice of childcare, students' choice of high school, and college enrollment. First, I present a strategy to overcome a limitation of instrumental variables in these settings, where there are many endogenous choices. I use this strategy to provide empirical evidence from an early childhood development intervention in Colombia, where parents can choose among different childcare options (e.g., small centers, large centers, or home care). In the third chapter, I focus on the Chilean high school context where students can choose from three types of schools: academic, vocational, or hybrid. I find that, while academic schools seem to improve the student's academic achievement, the effects of hybrid and vocational schools depend on the student's fallback option (i.e., what they would have chosen if their preferred option was not available). Last, in the Colombian context, jointly with Maria Marta Ferreyra and Sergio Urzúa, I examine the labor market returns to short-cycle degrees versus bachelor’s degrees and versus obtaining a high school diploma. Chapter 2 presents a strategy to estimate causal effects in settings where agents can choose from many options along with empirical evidence from an early childhood development intervention in Colombia. I exploit the joint effect of discrete and continuous instruments on the probability of choosing an option. These combined effects of different instruments have been recognized and studied in contexts where there are only two alternatives. In turn, current methods for multiple unordered choices implicitly assume that the potential response to one instrument is the same across the distribution of other instruments. Instead, I allow for the response to the variation in one instrument (for example, an offer of a slot at a childcare center) to differ depending on other instruments (for example, proximity to the center). To do so, I employ a latent utility framework and model agent's responses to the instruments through their effect on each option's costs. With assumptions motivated by economic theory (i.e., convexity of cost functions), I define conditional vectors consisting of combinations of potential choices that differ along the distribution ofa second instrument. I use conditional vectors and recent advances in the instrumental variables literature to estimate local average treatment effects. With this strategy, I empirically assess the effect of different types of childcare (e.g., small centers, large centers, or home care) on the cognitive, nutritional, and socio-emotional development of children from 0-5 years of age in Colombia. My results suggest that childcare centers with better infrastructure and services could improve some children's cognitive development. In contrast, existing estimation methods would find overall negativeeffects of these centers on cognitive development. In Chapter 3, I estimate the effects of different high school types on educational achievement, such as high school completion and higher education enrollment. I find evidence that suggests that attending a vocational high school does not have a differential effect on the probability of enrolling in a vocational college. Moreover, while hybrid schools seem to foster student enrollment in bachelor’s programs, this effect largely depends on the student's fallback option. In particular, there is no evidence of improvements in educational achievement among students who would have chosen academic schools instead of hybrid schools. In Chapter 4, with Maria Marta Ferreyra and Sergio Urzúa, we provide evidence of diversion and expansion effects of changes in the local supply of short-cycle degrees, in the context of higher education for Colombia. Our results suggest that most students would divert from bachelor's- and into short-cycle- degrees as the local supply of short-cycle degrees changes. For these students we find significant gains, particularly among women, in terms of participation in the formal labor market and years of experience.Item Essays on the Economics of Skills(2019) Saltiel, Fernando Andres; Urzua, Sergio; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)In this dissertation, I examine the importance of specific components of the skill vector in affecting outcomes across various settings. In particular, I first consider the importance of non-cognitive skills in higher education in the United States, both in explaining academic undermatch, but also showing their importance towards successful degree completion. In the Chilean context, I consider how early-life math skills affect the likelihood of reaching the top of the income distribution, partly through leading to employment in higher-quality firms. The last chapter of my dissertation presents a discrete choice model of college majors, in which I consider how non-cognitive skills contribute to the gender gap in STEM majors in the United States. In particular, I document the importance of mathematical self-efficacy as an important driver of the gender gap in STEM. In Chapter 2, I analyze the importance of non-cognitive skills in the context of higher education. Using longitudinal data for the United States, I first find that students with higher non-cognitive skills are more likely to enroll in higher-quality four-year colleges. Furthermore, students who have been previously characterized as "under-matched" in higher education have significantly lower non-cognitive skills than students with equivalent test scores. While enrollment is the first step towards higher education completion, a burgeoning literature has documented falling completion rates among enrollees. In this context, I find that for both two-year enrollees as well as those in four-year colleges of varying qualities, non-cognitive skills are strong predictors of subsequent college completion. Chapter 3, written in collaboration with Sergio Urzua, estimates the returns to skills in the labor market by taking advantage of three administrative data sources. We first test for non-linearities in these returns and find that the returns to mathematical skills are highly non-linear, with math skill 'superstars' far outearning other high math scorers. High math-skilled workers not only complete more years of education, but graduate from higher quality universities and earn higher-paying degrees. We further examine the role of firms as a mediator of the returns to skills, a dimension not previously explored in the literature. We find that high-skilled workers match to high-paying firms immediately upon labor market entry. We conduct a decomposition to examine the separate contribution of education and firms in mediating the returns to skills, and find that worker-firm matching explains almost half of the estimated returns. Chapter 4 studies the relationship between pre-college skills and the gender gap in STEM majors. I expand upon the analysis in the first two chapters, by introducing structure to students' human capital investment decisions using a discrete choice model of college major choices. I implement the model using longitudinal data for the United States and consider students' initial and final major choices in a context where college students sort into majors based on observed characteristics and unobserved ability. More specifically, I distinguish observed test scores from latent ability. I find that math test scores significantly overstate gender gaps in math problem solving ability. Math problem solving ability strongly predicts STEM enrollment and completion for men and women. I further explore the importance of math self-efficacy, which captures students' beliefs about their ability to perform math-related tasks. Math self-efficacy raises both men's and women's probability of enrolling in a STEM major. Math self-efficacy also plays a critical role in explaining decisions to drop out of STEM majors for women, but not for men. The correlation between the two math ability components is higher for men than for women, indicating a relative shortfall of high-achieving women who are confident in their math ability. Lastly, I estimate the returns to STEM enrollment and completion and find large returns for high math ability women. These findings suggest that well-focused math self-efficacy interventions could boost women's STEM participation and graduation rates. Further, given the high returns to a STEM major for high math ability women, such interventions also could improve women's labor market outcomes.Item Essays on Transatlantic Differences in Taxation, Redistribution and Provision of Public Goods(2013) Torul, Orhan; Drazen, Allan; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)This dissertation investigates differences between the U.S. and Europe in the levels of taxation, redistribution, provision of public goods, and perception of fairness in income inequality. The first chapter concentrates on the differences between the U.S. and Scandinavia in higher education, and asks how it is possible that the U.S. has considerably more unequal higher educational attainment, higher reliance on private education and lower taxes than Nordic Europe, given similar political institutions. To address this question, I develop a parsimonious overlapping generations model in which agents can choose between public and private education. I first show that for a given tax rate difference of 7 percent, the model can deliver the observed educational Transatlantic differences, without having to rely on cross-country differences in preferences, parameters or other unorthodox elements. Next, I show the model can provide insight into how either the U.S. or the Nordic tax regimes could receive political consent. My explanation is due to the fact that per-capita output and other macroeconomic variables are U-shaped in taxes, both in the model and in the cross-country data. The economic intuition behind this finding is that while at low tax rates an increase in taxes and public education provision dampen human capital accumulation due to marked drops in private education attainment, at high tax rates public education provision gets sufficiently large that a majority of the population prefers public over private education, and further increases in taxes boost public education attainment more than they reduce private one. The second chapter incorporates the Transatlantic differences in perceptions into the picture and asks how the fact that a majority of Europeans believe income differences are primarily due to luck while a majority of Americans attribute such differences to the role of effort and skill reconciles with Transatlantic macroeconomic differences. I extend the model from the first chapter to include two sources of individual income differences: an inborn competence shock which affects labor supply choice and education decisions, and a luck shock on income, which is orthogonal to decision rules and inborn abilities. I find that low taxes coupled with low public education provision, as in the U.S. case, induce a large impact of inborn competence on schooling and labor supply, which in turn implies that a large share of the U.S. income differences are due to skill, education and effort. By contrast, a combination of high taxes and high public education, as in Europe, minimizes total income inequality and differences due to effort and inborn competence, and magnifies the impact of luck on inequality, in accordance with the existing beliefs. I also show that the U-shaped behavior of macro variables and welfare gains in taxes, as documented in the first chapter, carries over to this model, thereby providing insight into the political sustainability of macroeconomic variables and perceptions.Item DETERMINANTS OF COLLEGE GRADE POINT AVERAGES(2012) Bailey, Paul Dean; Hellerstein, Judith K; Wallis, John J; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)Chapter 2: The Role of Class Difficulty in College Grade Point Averages. Grade Point Averages (GPAs) are widely used as a measure of college students' ability. Low GPAs can remove a students from eligibility for scholarships, and even continued enrollment at a university. However, GPAs are determined not only by student ability but also by the difficulty of the classes the students take. When class difficulty is correlated with student ability, GPAs are biased estimates of students' abilities. Using a fixed effects model on eight years of transcript data from one university with one fixed effect for student ability and another for class difficulty, I decompose grades at the individual student-class level to find that GPAs are largely not biased. Eighty percent of the variation in GPAs is explained by student ability, while only three percent of the variation in GPAs is explained by class difficulty. This estimation is carried out using an ordered logit estimator to account for the ordered but non-cardinal nature of grades. Chapter 3: Are Low Income Students Diamonds in the Rough? Consider two students who earn the same SAT score, one from a lower-income household and the other from a higher-income household. Since educational expense is a normal good, the lower income student will, on average, have had a less well-resourced primary and secondary education. The lower income student may therefore be stronger than their higher income counterpart because they have earned an equally high SAT score despite a lower quality pre-collegiate environment. If this is the case, once the two students start attending the same college---and school spending becomes more similar---the lower income student's in-college performance should be relatively higher. I test this theory by using eight years of data from one university to compare the grade point averages of students from various family income levels. Results show that lower income students appear to be "diamonds in the rough": lower income students have surprisingly high outcomes, conditional on their SAT scores. However, unconditional on SAT score, the lower income students also outperform their higher income counterparts. This suggests that a single university's data is inappropriate for answering this question. I also develop how this type of regression might give insight into the production function of human capital. Specifically, a common assumption made in the economics of education literature is that first differenced human capital accumulation rates are independent of ability because ability is already represented in the test used as a base period. A “diamonds in the rough” result would contradict that assumption, and show that SAT is not a perfect measure of underlying ability. Chapter 4: Estimation of Large Ordered Multinomial Models. Decomposing grades data into class fixed effects and student fixed effects is difficult and the estimator's accuracy is unknown. I describe the successful application of the L-BFGS algorithm for fitting these data and propose a new convergence criterion. I also show that when the number of classes is about 32 (slightly fewer than is typical at the University of Maryland), the estimator performs well at estimating correlations and the non-parametric statistics used in Chapter 2 of this dissertation. Some issues with significance testing the sets of fixed effects are also considered and I show that when the number of classes is 32, the significance tests are not sufficiently protective against false rejection of the null hypothesis. The jackknifed likelihood ratio test is shown to be only modestly biased towards false rejection regardless of the number of classes per student.Item LOSS AVERSION AND THE INTERGENERATIONAL CORRELATION OF INCOME(2010) Malloy, Liam Case; Shea, John; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)Recent estimates of the intergenerational correlation of income in the United States are centered around 0.6. Existing empirical work is only able to explain about half of this correlation. The first chapter of this dissertation provides a behavioral explanation that accounts for almost half of the unexplained correlation. Heterogeneous agents in the model are loss averse and must choose their education level after learning their "earning ability" and inheriting a reference level of consumption and bequest from the previous generation. These agents make education choices in part to avoid losses relative to reference consumption in the first and second periods of their lives. Agents with high inherited reference consumption choose high levels of education in order to avoid losses in the second period and are therefore likely to have high income and consumption themselves. Those with very low reference consumption are likely to get more education than those in the middle of the reference consumption distribution, as they are less likely to experience a loss in the first period. I find support for this U-shaped education decision rule using the NLSY97 data set. The dissertation also tries to answer the question of why black and white workers display significant differences in their labor market outcomes. Black workers tend to have less education and earn lower income than their white counterparts at each level of education. The second chapter explores three possibilities (wage discrimination, lower earning ability, and low aspirations) for these gaps within the framework of a model with loss aversion and inherited reference consumption. When people have loss-averse preferences, low aspirations lead to lower levels of chosen education. Loss aversion and low aspirations can lead to education outcomes similar to those caused by outright discrimination or lower earnings ability. When combined with wage discrimination the model can also help explain the larger poverty trap and lower affluence net in black families as opposed to white families. Simulation results compare favorably to intergenerational quintile transition rates in the literature. The model takes many generations to reach educational equality after a period of wage discrimination is ended.