Dissertation Spotlight: Educational Choice and Economic Activity

Fiscal policy rules for the funding of higher education impact single household decisions on post-secondary higher education. This subsequently affects economic output, growth, and income distribution. The researcher hones in on the angle of macroeconomics to examine possible effects for a large-scale look at the economy. There is a link between economic growth and the skills, knowledge, and experience that humans possess. Existing models sort generations into three separate skill groups: low skill (no college education), medium-skill (college degree in non-R&D curricula), and high skill (college degree in R&D curricula). The author exemplifies that the model utilizes a Negishi-weighted social-welfare function, and the satisfaction derived from a good or product for each group is impacted by aggregate conditions.

The results of comparative statistics demonstrate the impact of alternative funding regimes. By funding those with a high-skilled education, the economic benefits are very much prevalent. Growth is improved; however, it is at the expense of the lower leveled along with their economic output. Alternatively, by funding those with a medium-skilled education, there are only modest results in growth; however, substantial output increases.

There are twelve periods, and the researcher selected five-year intervals. Five-year intervals were selected because the average time to complete a college degree is 5.1 years. Particular degrees of skill correlate to certain periods. While lower-skilled workers immediately enter the workforce after secondary education and contribute to the production of goods, the medium and high-skilled types abstain from working in the first period. They instead begin education for higher-level skills to increase their human capital, or skills and experience. Those in medium and higher levels later make themselves available for hire after completion of their education. While the medium and lower-skilled types now work together for the production of intermediate goods, high-skilled types work in research and development. Research and development are vital to the growth of the economy because of the countless innovations it brings to endogenous families who later pursue a high-education.

Once the first period passes, all three groups are in their areas. They continue to increase their skills and experience by interacting with other, more experienced workers. This type of learning later diminishes with time as individuals grow in age and those experienced teachers diminish.

The household then uses labor incomes to pay off higher education loans and make economic decisions. However, the researcher claims the problem for the household is maximizing utility from consumption subject to the conditions around human capital evolution, government funding to education, and budget constraints.

Competitive general equilibrium is delivered by the core equations and assumption that the labor and goods market is clear. The equations demonstrate a growing economy with a steady-state path. The steady-state path is used for comparative static exercise between two model economies with differing education funding policies. The researcher’s results show that depending on how funding is distributed, there are differing impacts for funding education.

The researcher then assesses the details of the model within each cohort’s age group. For household settings and optimization, the household’s model overlaps generations of agents. The initial period of an agent’s life is critical as they make decisions on post-secondary education. This decision then relies on the likelihood of success in college and thus leads to a chosen career path. Once a career path is chosen, agents make optimal decisions that affect their retirement and working lives.

With the use of probability of success for STEM and non-STEM curricula, the researcher hypothesizes decisions based on factors such as the likelihood of success in college, expected present value of a college education, and the opportunity cost of attending college in various periods.

The researcher also used an additional model that was similar to the former; however, instead of households sharing risk, the skill group cohorts control their own resources while maximizing a social welfare function.

 There are three different models within these first two chapters: The Neglishi-weighted model, the baseline model, and the heterogeneous agents model. The Neglishi-weighted model holds the highest level of cooperation and the largest macroeconomic benefits. 

The researcher lastly examines these models in a constantly changing and randomly determined environment to identify the economies’ responses to productivity shocks and to explore the dynamics with changing higher education funding patterns. 

Dr. Jeffrey Ward is a graduate of the College of Social Science and Public Policy at Florida State University. This post was based on Jeff’s dissertation, written by COSSPP Blog Intern, Jillian Kaplan.

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