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The Changing Role of Family Income and Ability in Determining Educational Achievement

  • Belley, Phillippe
  • Lochner, Lance

This paper uses data from the 1979 and 1997 National Longitudinal Survey of Youth cohorts(NLSY79 and NLSY97) to estimate changes in the effects of ability and family income on educational attainment for youth in their late teens during the early 1980s and early 2000s. Cognitive ability plays an important role in determining educational outcomes for both NLSY cohorts, while family income plays little role in determining high school completion in either cohort. Most interestingly, we document a dramatic increase in the effects of family income on college attendance (particularly among the least able) from the NLSY79 to the NLSY97. Family income has also become a much more important determinant of college `quality' and hours/weeks worked during the academic year (the latter among the most able) in the NLSY97. Family income has little effect on college delay in either sample. To interpret our empirical findings on college attendance, we develop an educational choice model that incorporates both borrowing constraints and a `consumption' value of schooling – two of the most commonly invoked explanations for a positive family income - schooling relationship. Without borrowing constraints, the model cannot explain the rising effects of family income on college attendance in response to the sharply rising costs and returns to college experienced from the early 1980s to early 2000s: the incentives created by a 'consumption' value of schooling imply that income should have become less important over time (or even negatively related to attendance). Instead, the data are more broadly consistent with the hypothesis that more youth are borrowing constrained today than were in the early 1980s.

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File URL: http://www.clsrn.econ.ubc.ca/workingpapers/CLSRN%20Working%20Paper%20no.%202%20-%20Belley%20&%20Lochner%20-%20Final.pdf
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Paper provided by Vancouver School of Economics in its series CLSSRN working papers with number clsrn_admin-2009-9.

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Length: 69 pages
Date of creation: 02 Feb 2009
Date of revision: 02 Feb 2009
Handle: RePEc:ubc:clssrn:clsrn_admin-2009-9
Contact details of provider: Web page: http://www.clsrn.econ.ubc.ca/

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  1. Cunha, Flavio & Heckman, James J., 2007. "A New Framework for the Analysis of Inequality," IZA Discussion Papers 2565, Institute for the Study of Labor (IZA).
  2. Philippe Belley & Lance Lochner, 2007. "The Changing Role of Family Income and Ability in Determining Educational Achievement," NBER Working Papers 13527, National Bureau of Economic Research, Inc.
  3. Lisa Barrow & Cecilia Elena Rouse, 2005. "Do Returns to Schooling Differ by Race and Ethnicity?," American Economic Review, American Economic Association, vol. 95(2), pages 83-87, May.
  4. Heckman, James J. & Lochner, Lance J. & Todd, Petra E., 2006. "Earnings Functions, Rates of Return and Treatment Effects: The Mincer Equation and Beyond," Handbook of the Economics of Education, Elsevier.
  5. Flavio Cunha & James Heckman & Salvador Navarro, 2005. "Separating uncertainty from heterogeneity in life cycle earnings," Oxford Economic Papers, Oxford University Press, vol. 57(2), pages 191-261, April.
  6. Keane, Michael P & Wolpin, Kenneth I, 2001. "The Effect of Parental Transfers and Borrowing Constraints on Educational Attainment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 1051-1103, November.
  7. Stephen V. Cameron & James J. Heckman, 1998. "Life Cycle Schooling and Dynamic Selection Bias: Models and Evidence for Five Cohorts of American Males," Journal of Political Economy, University of Chicago Press, vol. 106(2), pages 262-333, April.
  8. Susan M. Dynarski & Judith E. Scott-Clayton, 2006. "The Cost of Complexity in Federal Student Aid: Lessons from Optimal Tax Theory and Behavioral Economics," NBER Working Papers 12227, National Bureau of Economic Research, Inc.
  9. David Card & Thomas Lemieux, 2000. "Can Falling Supply Explain the Rising Return to College for Younger Men? A Cohort-Based Analysis," NBER Working Papers 7655, National Bureau of Economic Research, Inc.
  10. Blackburn, McKinley L & Neumark, David, 1993. "Omitted-Ability Bias and the Increase in the Return to Schooling," Journal of Labor Economics, University of Chicago Press, vol. 11(3), pages 521-44, July.
  11. Ralph Stinebrickner & Todd Stinebrickner, 2008. "The Effect of Credit Constraints on the College Drop-Out Decision: A Direct Approach Using a New Panel Study," American Economic Review, American Economic Association, vol. 98(5), pages 2163-84, December.
  12. Lance Lochner & Alexander Monge-Naranjo, 2002. "Human Capital Formation with Endogenous Credit Constraints," NBER Working Papers 8815, National Bureau of Economic Research, Inc.
  13. Cunha, Flavio & Heckman, James J. & Lochner, Lance, 2006. "Interpreting the Evidence on Life Cycle Skill Formation," Handbook of the Economics of Education, Elsevier.
  14. Murnane, Richard J & Willett, John B & Levy, Frank, 1995. "The Growing Importance of Cognitive Skills in Wage Determination," The Review of Economics and Statistics, MIT Press, vol. 77(2), pages 251-66, May.
  15. Dynarski, Susan M. & Scott–Clayton, Judith E., 2006. "The Cost of Complexity in Federal Student Aid: Lessons from Optimal Tax Theory and Behavioral Economics," National Tax Journal, National Tax Association, vol. 59(2), pages 319-56, June.
  16. James Heckman & Lance Lochner & Christopher Taber, 1998. "Explaining Rising Wage Inequality: Explanations With A Dynamic General Equilibrium Model of Labor Earnings With Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(1), pages 1-58, January.
  17. Michael P. Keane, 2002. "Financial Aid, Borrowing Constraints, and College Attendance: Evidence from Structural Estimates," American Economic Review, American Economic Association, vol. 92(2), pages 293-297, May.
  18. Chinhui Juhn, 2003. "Labor market dropouts and trends in the wages of black and white men," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 56(4), pages 643-662, July.
  19. repec:cup:cbooks:9780521873161 is not listed on IDEAS
  20. Steven G. Rivkin, 1995. "Black/White Differences in Schooling and Employment," Journal of Human Resources, University of Wisconsin Press, vol. 30(4), pages 826-852.
  21. Thomas J. Kane & Cecilia Elena Rouse, 1999. "The Community College: Educating Students at the Margin between College and Work," Journal of Economic Perspectives, American Economic Association, vol. 13(1), pages 63-84, Winter.
  22. Stephen V. Cameron & James J. Heckman, 2001. "The Dynamics of Educational Attainment for Black, Hispanic, and White Males," Journal of Political Economy, University of Chicago Press, vol. 109(3), pages 455-499, June.
  23. Pedro Carneiro & James J. Heckman, 2002. "The Evidence on Credit Constraints in Post--secondary Schooling," Economic Journal, Royal Economic Society, vol. 112(482), pages 705-734, October.
  24. Stephen V. Cameron & Christopher Taber, 2004. "Estimation of Educational Borrowing Constraints Using Returns to Schooling," Journal of Political Economy, University of Chicago Press, vol. 112(1), pages 132-182, February.
  25. Dick Andrew W. & Edlin Aaron S. & Emch Eric R., 2003. "The Savings Impact of College Financial Aid," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 2(1), pages 1-31, June.
  26. John Cawley & James Heckman & Edward Vytlacil, 1998. "Understanding the Role of Cognitive Ability in Accounting for the Recent Rise in the Economic Return to Education," NBER Working Papers 6388, National Bureau of Economic Research, Inc.
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