Research Spotlight: The Impacts of Educational Choice

My research interests have centered around individual educational choice and macroeconomic outcomes. Questions that I am addressing in my working papers focus on public funding for higher education. I have contributed to the literature on human capital formation and higher education financing by probing general equilibrium models. This is the most appropriate strategy because households’ decisions and labor market outcomes are simultaneously determined. The household is modeled by cohorts of overlapping generations. This feature allows agents to make educational decisions that affect future career paths.

My job market paper is a first step in addressing the impacts of educational choice. The household is modeled by cohorts of heterogeneous agents, distributed over ability/interest in schooling. Agents at the beginning of their initial period make a schooling decision based on their ability/interest, which separates the household into three educational/worker types. Low-skilled workers forgo education in favor of working in their initial period, whereas medium- and high-skilled workers spend their first period in education. Human capital evolves according to educational choice, incorporating several important ingredients: formal education (Lucas, 1988), learning-by-doing (Stokey, 1988), social-learning externalities (Lucas and Moll, 2014), depreciation (Dinerstein, Rigissa and Yannelis, 2020; Mincer and Ofek, 1982; Weber, 2014), and an intergenerational transfer of knowledge (Llyod-Ellis, Huw, and Roberts, 2002). High-skilled labor is employed by R&D to produce innovations. Intermediate goods are produced using medium- and low-skilled labor. These productive sectors of the economy join to produce final consumption goods, as in Comin and Gertler (2006) and Anzoategui, Comin, Gertler, and Martinez (2019). The most significant advancement of my model is to make the workforce participation in each sector the result of a household decision. The model is calibrated to key empirical facts reflecting current educational choices of whether to attend college, and if so whether to pursue a curriculum that prepares the agents for work in research fields, along with age-earnings and savings profiles, wage premiums, and growth. Comparative static exercises are performed to observe differences between funding policies with respect to growth, welfare, and income equality.

The main result of the paper is that subsidizing medium-skilled education path provides the largest macroeconomic benefits in terms of household welfare over a 50-year period. Funding high-skilled education provides higher growth, as these workers are contributing directly by producing R&D outputs. However, when the average level of human capital increases in intermediate goods production, the value of each new innovation increases. The medium-skill educational subsidy induces low-skilled workers to engage in higher education, without reduced enrollment in the high-skilled curriculum. Therefore, under this funding policy growth is not diminished, compared to the baseline model, and output is greatly improved.

Jeffrey Ward is a PhD Candidate at the FSU Department of Economics. His research interests include macroeconomic growth and human capital formation. You can learn more about Jeffrey here.

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