Policies to Foster Human Capital

This paper was given presented at the Aaron Wildavsky Forum, Richard and Rhoda Goldman School of Public Policy, University of California at Berkeley. The research reported here was supported by the National Science Foundation, the Russell Sage Foundation and the American Bar Foundation. Outline: Rising Wage Inequality - A Global Problem Linked To Trade and Technology Show Magnitudes of Problem 1.66 Trillion Cost To Restore U.S. to Previous Levels Tuition Subsidy Policy How to Combat This? Transfer Unpopular Skill enhancement is popular Another avenue is to subsidize work by the unskilled Think more broadly about tax/transfer policy Take the Long View Main Points of My Lecture Tonight About Skill Formation and Sources of Skill Formation in A Modern Economy Costly To Produce Skill Need to Recognize That Skill is Not Undimensional Recognize Diversity of Skill Motivation, IQ, Skill all matter but these are not the same thing. Need to Recognize the Life Cycle of Skill Production: Learning Begets Learning and Early Learning More Productive Than Later Learning: Not just because payoff is less for the late investor but also Because of synergies and Complementarity. Beyond A Certain Age and Stage in Life Cycle H.C. Investment Not Productive. Recognize Important Role of Families and Informal Sources of Skill "Social Planners" and professional educators equate skill with educational; what is produced in their institutions and what is measured by their tests; but in a broader definition of skill families play a much greater role (values; motivation) OJT is productive. Firms are highly productive sources of skill of Human Capital 25-50% of Human Capital Produce on the Job The Role of the Formal Overstated and Informal Context and Sources of Skills Understated. A Substantial Antimarket - Anti Choice Bias of Many Educational Planners Against Market and Competition - Yet The Evidence Strong Favors Competition in Provision of Education German Apprenticeship System // Data from U.S. Parental Preferences Peculiar World of High School and the Advantage of School to Work Programs Many Traditional Arguments Supporting Educational Interventions Greatly Overstated Evidence Against Short Term Liquidity Constraints Evidence that H.C. Should be Taxed More (At Least Within U.S. System) - Elimination of Progressive Taxes and Shift To A Consumption Tax and Making Tuition Deductible. Raises Physical Capital Accumulation and Raises Productivity and Wages Formal Schooling and Job Training both Private and Public Quality Effects Credit Constraints Wage Subsidies: Do They Work? Tax Policy Early Interventions and Donohue Siegelman Estimates Long View