Featured Abstract: The Anemic Response to Skill Premium Growth

A new paper by Joseph G. Antolji, Prashant Bharadwaj, and Fabian Lange looks at whether or not American youth have responded to increasing economic rewards for skills and education by investing more in skills and education:

We examine changes in the characteristics of American youth between the late 1970s and the late 1990s, with a focus on characteristics that matter for labor market success. We reweight the NLSY79 to look like the NLSY97 along a number of dimensions that are related to labor market success, including race, gender, parental background, education, test scores, and variables that capture whether individuals transition smoothly from school to work. We then use the re-weighted sample to examine how changes in the distribution of observable skills affect employment and wages. We also use more standard regression methods to assess the labor market consequences of differences between the two cohorts. Overall, we find that the current generation is more skilled than the previous one. Blacks and Hispanics have gained relative to whites and women have gained relative to men. However, skill differences within groups have increased considerably and in aggregate the skill distribution has widened. Changes in parental education seem to generate many of the observed changes.

 

 

 

 

In other words, they haven’t, at least not as much as we might expect given the significant increase in labor market returns to skills and education. In fact, about two-thirds of the increase in young people’s skills since 1979 is due simply to the fact that their parents are more educated, and inequities in skill distribution have increased.

In another article, the authors look at possible explanations why the response might have been so anemic. One potential answer is that many young people’s ability to increase their investment in education and building their skills is constrained by their earlier educational experiences–in other words, children who did not get a high quality early education earlier in their preschool, elementary, and middle school years lack the skills and preparation to seize educational opportunities in high school and college:

Research summarized in Cunha and Heckman (2007) suggests that part of the explanation might be that parental investment during early childhood shapes the potential to acquire additional skills later in life. Parents might not have responded to the increase in labour market returns, perhaps because they were not fully aware of the large increase in the returns to skills or because their children’s labour market success might not be the primary motivating factor in determining the time and resources they devote to their children.

 

 

 

 

To enable more young people to respond to incentives and upgrade their skills in response to demand, we must improve early childhood and elementary school education, and also improve education and support for parents, so that they understand the economic realities facing their children and have the resouces and skills to support their children’s learning in early childhood and beyond.