Bryan Caplan  

Education and the Economic Way of Thinking: Another Test Case

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European Demographics... Rock on, Alex...

More educated people think more like economists. It's one of the big findings in my piece in the 2001 Journal of Law and Economics. And that's controlling for income, income growth, job security, gender, ideology, and party. It's a big effect, too: Every step up a 7-point educational scale matters about 9.3% as much as an economics Ph.D.

Those of us who hang around universities (well, other than GMU) find this hard to believe. "All the Ph.D.s I know are socialists!" This is a classic case of selection bias. Left-wingers with lots of education hang around universities; the rest get out while the getting is good.

I recently came across yet another study confirming that the well-educated think more like economists than their fellow citizens. It's a Hearst Report on "The American Public's Knowledge of Business and the Economy," dating from around 1984. Table 48 caught my eye.

The question: "Which of the following statements do you agree with in regard to the minimum wage?"

The responses:

              8th grade/less  Some High School  H.S. Grad  Some College  College Grad
No one should 76              66                69         59            41      
be paid less
Ought to be   21              27                30         41            57
exceptions

My interpretation: More educated people are a lot more likely to favor exceptions because they grasp, in a rudimentary way, the fact that pushing up the wages of low-skilled workers causes unemployment. Of course, this insight is so unpalatable that most well-educated people support the existence of the minimum wage anyway. But their support is plainly less dogmatic than that of their fellow citizens.

I suspect that most economists would interpret these results differently. Why not just say that people who earn well above the minimum wage are less supportive of the minimum wage out of self-interest? I only have the summary tables, so I can't prove this alternative theory wrong. But in every case where I've had individual-level data on both income and education, it turns out that education does the work, not income. I don't see any reason not to interpret the Hearst results in light of all the other data.

Incidentally, one important question I have NOT been able to resolve so far is whether education is simply IQ in disguise. My research assistant Steve Miller is already hard at work on this question. What will he find? Stay tuned.



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The author at Financial Rounds in a related article titled Smarter People Think More Like Economists writes:
    Arnold Kling at Econolog believes that better educated people are more likely to think like economists. With the exception of some of my more left-wing academic friends, I'd have to agree with him. Economics is based on the idea that there are alw... [Tracked on May 1, 2005 6:48 PM]
COMMENTS (25 to date)
Half Sigma writes:

Yes, education is IQ in disguise (because I've been to college, no one learned much there).

And although some fail to grasp the basic supply and demand concept, it's far more likely that college educated people just don't see the minimum wage affecting them while the guy with the 8th grade question is likely making the minimum wage so obviously he doesn't want that lowered.

Danno writes:

The problem with allowing exceptions to a minimum wage law, as I see it, is preventing abuses of the system.

A lot of people already are either unfortunate enough to not be able to leverage their available resources to engineer a better position in life, either because of situation or a simple lack of intelligence. The reason, as I see it anyway, for bottom line minimum wage laws is that while the abolishment of such laws would possibly serve the ultimate benefit of the good, we have a duty that is not in our, the smart, powerful, and resourceful, best interests to systematically protect the weak and inept.

I think this is why I don't think all the problems can be solved by markets. No matter how well they could serve the majority and benefit the top, there will, by necessity, be those at the bottom who cannot be helped by virtue of throwing the system into disequilibrium. And there is no plausable guarantee that the conditions for that small percent will be acceptably humane.

But I'm kind of getting away from the point, aren't I?

Randy writes:

Danno,

Re; "...simple lack of intelligence."

Though use of the word "stupid" is about as politically incorrect as one can get, "stupidity" is the root cause of nearly all social problems. And all the money and all the education in the world won't solve it.

In essence, the minimum wage is welfare for the stupid. It allows many to make it "on their own" who would be unable to do so if they were paid what they were really worth. The problem is that this form of welfare causes a loss of jobs for others who are just temporarily stupid (e.g., young workers trying to earn money for college). Perhaps it would be better to just pay welfare directly to the truly stupid, and let the labor market set its own rates, and create more jobs.

David Thomson writes:

One must immediately distinguish between degrees in the hard and the soft sciences. The hard ones demand pure intelligence. Ideological bias has little to do with anything. 1+1=2 and that’s all there is to it. One’s views on affirmative action, the Bible, or the Bush presidency are irrelevant. But this is definitely not the case in the softer areas of study. Intellectual sluttiness is usually mandatory. A Ph.D. in chemical engineering is almost certainly worthy of respect. However, a Ph.D. in English, history, education, and similar subjects is likely evidence that the degree holder is a liberal whore. Exceptions do indeed exist, but as a general rule these degrees are not worth the paper they are printed on.

I think education is a good (but imperfect) proxy for education. It's the old Spence signalling argument - it's easier (takes less study time) for smart people to get any given level of education than it is for dumb ones.

So, education signals either ability or determination. I'd also agree with David that the TYPE of education matters. Math or other "hard" disciplines probably correlate better with economic reasoning than do "soft" disciplines like english. Facts are difficult things- they require logic to grasp.

Are you aware of any studies linking economic/compatible views with educational discipline (i.e. are history majors more likely than engineering majors to think like economists?)

Also, for your RA's work, I'd be interested to see results controlled by discipline. My guess is that education in a quant discipline is very different from education in english or education). Math requires much more drill work and discipline, and may also relate to attitudinal differences (i.e. self-discipline),

Tom West writes:

First, I'm not at all certain that all economists generally accept that a Minimum Wage causes unemployment. There aren't all that many industries that are labor-limited. I doubt Walmart et al. would increase staff. A minimum-wage decrease would merely go straight to their bottom line.

Second, is it really in our interests to create a society in which a significant number of people are forced to try and subsist on something even below current minimum wage? While I agree that this makes it harder for students and other marginal workers, I don't think the tradeoff of a decline in "bread-winners" income is worth the marginal growth in employment it would bring.

I strongly suspect that society is better off directly supporting those who are unemployable at current minimum wage levels than reducing the wages of everyone currently working at minimum wages now.

David Thomson writes:

“I strongly suspect that society is better off directly supporting those who are unemployable at current minimum wage levels than reducing the wages of everyone currently working at minimum wages now.”

Nothing could be further from the truth. You simply fail to understand that the at least least metaphorical reality of Original sin is alive and well on planet Earth. Free money merely encourages laziness and dependency. These people would never get off their rear ends and try to improve their lot in life. Why try to be more than a dishwasher if the money you receive equals that of a chef?

Lawrance George Lux writes:

Conservative claims always assert that Minimum Wage means loss of Jobs. It does, but only in the Extreme. A reasonably set Minimum Wage can create Support Services Employment, and at the same time, eliminate inefficient Business practice--another source of long-term growth of Employment. Nothing about Economics is 'Cut and Dryed', especially the issue of Minimum Wage. lgl

Tom West writes:

Why try to be more than a dishwasher if the money you receive equals that of a chef?

For the sake of argument, I'll let the obvious answers of "increased status" and "increased self-worth" slide, as yes, there are no doubt a few who would take welfare over work given all else equal.

More to the point, my claim is that benefits of the few extra jobs would be outweighed by the cost to society of the decreased wages of existing workers. And the cost is not borne by the workers alone. Do you really want to live in a society where those working hard (but unskilled) still live in penury? Do we really need a further decrease in how much a man's labor (and thus the man) is worth?

Randy writes:

If a minimum wage is such a great idea, why not set it at $15/hr? - or $50/hr? Then everyone who works would be comfortably in the middle class. Certainly everyone who works for a living "deserves" to have the things that other working people have.

But it would cost too many jobs, you say?

So let me get this straight - its okay to cost a few people their jobs in the interest of political gain, just not so many jobs that it would cause political pain.

Ray writes:

Is education IQ in disguise?

Those with a higher IQ will be more likely to seek out higher education. Thus a college education could be said to be a behavioral trait of those with a higher IQ. But education in and of itself of course doesn’t produce a higher IQ i.e. a more acute ability for abstract reasoning or problem solving.

Secondly, hyper study habits among the young with low IQ’s has shown to produce a slight bump in their IQ scores, but these increases have shown not to be sustainable. This has to do with reversion to the mean. Over time, these groups of children, when left to their own devices predictably reverted to the behavior and IQ of their parents, even when they never knew their parents or their parents’ culture.

Ray writes:

Eight or nine years ago, I read a short report in Scientific American by a professor from Harvard who was using data showing that cigarette smoking and alcohol consumption were higher among the truly poor.

The correlations are well known between low IQ, habitual poverty and unhealthy, destructive behavior. But of course, he didn’t mention IQ at all.

This guy’s theory was that these people were just so depressed that they had to drink and smoke more as a release or escape from their world. If we, the government, were to raise the minimum wage by a large amount, he was talking in the $10 to $12 an hour range, then their smoking and drinking would decrease proportionately.

I forget what his exact field of study was but it was definitely not a hard science.

James Schaeffer writes:

As I scanned the comments, I found it amazing that most showed their ignorance of the basic laws of economics. Most of those commenting were rationalizing that minimum wage laws are good for low wage earners. Somehow they believe that minimum wage laws have employers paying more than workers are worth. Don't they see that if a business paid more than their workers produce they would go out of business? In Atlanta most workers for small businesses (like restaurants) receive some of their pay under the table (to get to keep it from being flushed down the FICA/Medicare drain). Since the lowest earners receive more in tax refunds than they pay in taxes, their employers may be indirectly subsidized by these government welfare payments to workers. The minimum wage rate is lower than what these workers are worth. If it were more than they were worth they would soon be unemployed. If it were increased some will have their under-the-table cash pay cut, and may be netting less. Some will lose their job.

Ray writes:

The problem with minimum wage isn’t that such and such restaurant job is worth more or less, it is that a minimum wage sets an artificial floor to an otherwise free system. (Or what is supposed to be a free system.)

For the few jobs in our workforce that really are worth minimum wage, or thereabouts, if they receive a mandatory raise without any impetus from the market i.e. an increase in demand for the product they produce or sell, then yes, this has a negative impact on our economy.

This eventually evens out as employers factor these costs in to the prices of their products, but even then, this subsequent rise in prices cannot happen overnight. So the large companies i.e. McDonalds, can simply eat the loss while smaller companies have to make more drastic sacrifices elsewhere, even laying off a worker or two or perhaps delaying future hiring.

Tom West writes:

Somehow they believe that minimum wage laws have employers paying more than workers are worth.

Garbage. What the minimum wage does is force employers to pay some workers more than the straight market value of their labor. That work can be worth a great deal more to the owner. Example: On a construction site, I might require 2 workers to do casual labor. What is their worth to me? Might be $50/hr, might be $20. It doesn't matter. I'll pay them minimum wage and my margin is the difference. If the minimum wage is $1/hr, I still only need two bodies. I just keep a few bucks an hour more.

Their wage is not related to their worth to me until such time as their wage exceeds their worth. THEN, and only then are their problems. Your example is one occasion, but it's by no means the average minimum wage worker.

Do you really think McDonald's or Walmart would really increase their workforce if they could get away with paying their staff 1/2 of what they pay now?

Showing economic ignorance indeed...

Randy writes:

Tom,

Wages are not related to worth. Wages are set by the market. Laws distorting wages distort the market. Laws concerning minimum wage, Social Security, unemployment, etc., "protect" current workers not from their employers, but from other workers.

The question is, do we want more people working? - or more money for the ones who get the jobs? Do we want one person bringing in $50/day? - or two people bringing in $75/day? In my opinion, the paradigm that one person should be able to support a family is the driver behind the minimum wage. But how does one support a family on $50/day? Better to create more jobs so his wife and teenage kids can work too.

Scott Rogers writes:

Let's get to the "rub." If you think it is your duty to care for the poor, then God bless you- it's your right. However, when you team up with like minded individuals to force me to care, then you are using agression, even though, your mind feels better because you punch a hole in a ballot versus in my head to take what I've earned.

As the aforementioned research showed, you will have plenty of uneducated people willing to join you also-- mob rule. This is what the communists have relied upon: the ingnorant masses and guilt-ridden, idealistic individuals as yourself to lead them through your compassion.

Bernard Yomtov writes:

If a minimum wage is such a great idea, why not set it at $15/hr? - or $50/hr?

If eating an apple is good for you, why not eat twenty apples?

Ray writes:

The minimum wage is so harmful simply because it is an unnatural restriction on the market.

The average WalMart employee gets well over minimum by the way.

But what about a small business, a mexican food joint let's say (I'm writing this from Phoenix). If the propreitor could hire 5 local teenagers as opposed to 4 local teenagers, that is the difference of a mandatory minimum wage. It affects McDonalds also but not as obviously. Point being that the small business owner only has X amount of overhead that he can withstand. A minimum wage cuts deeper into that overhead without any impetus from the market.

Brandon Berg writes:

We can argue about how much unemployment it causes, but the fact remains that it does cause unemployment. That there are people who can be employed at $5/hr but not $10/hr is indisputable. And when we have labor sitting idle because of a minimum wage, that's pure waste. Like all price controls, the minimum wage is wasteful and destructive.

If you insist on using the sword of the government to help the poor, there are less destructive ways to do so. For example, a cash transfer is preferable to a minimum wage because it allows the employment of marginally employable labor. With superior alternatives like this, there's simply no justification for a minimum wage.

Tom West writes:

Better to create more jobs so his wife and teenage kids can work too.

Um, does this mean that unskilled singles starve?

you will have plenty of uneducated people willing to join you also-- mob rule.

Isn't "mob rule" a code word for... democracy :-).

Randy writes:

Bernard,

If eating an apple is good for you, why not eat twenty apples?

Good question. While its arguable that one minimum wage a day is good for us (politically addicted is more like it), for the sake of debate, let's assume that it is. Do we really want to force the people to eat more of it?

I like the analogy, this is fun :)

Randy writes:

Tom,

Re; Um, does this mean that unskilled singles starve?

No, it means they get roomates, just like they do now. Only the odds of all them having jobs goes up, so the total income of the house goes up.

Bill writes:

The minimum wage is barely important. What is it, something like 1.5% of the workforce? The real problem is the divorce of merit from salary. When a worker's salary depends upon seniority or job category instead of merit, the better workers reduce their productivity to the "LCD". This doesn't only happen in union shops or govt. jobs. Heck, I did it myself: I worked for a company that paid all workers of a certain category about the same, regardless of merit. When I found out that I was getting paid the same as the slackers, I became a slacker as well. It was great for me, but terrible for the (small) company, since I had been carrying the burden of the slackers with my high productivity. I wasn't the only good worker that did this, and soon the company hit the skids. I didn't care. I went to work for myself and make more money working part-time than I ever did working overtime for someone else. Well, I guess that's what you get when you hire a liberal as a CEO. He was a real nice guy--much too nice to run a business.

It does look like the market did its job. The inefficient business "lost market share", the slackers lost their jobs, and most of the good workers became self-employed and earn more per hour.

My favorite part was the job-loss of the useless middle managers. The entreprenuer that started the business hated paperwork and middlemen, so she had the real producers manage everything. She sold the company for megabucks and the new owners ran it into the ground by eliminating bonuses based upon merit and hiring useless executives and paper-pushers. I just love seeing useless workers lose their jobs. I guess I'm just an evil capitalist! ; {>

Seriously, though, destroy the minimum wage and subsidize the lower-than-80-IQ set with the dole instead. I hate taxes, but morons didn't ask to be born that way. (Although I grew up in a town where a retarded man was the world's best window washer. He made more money than a lot of folks. I love that guy! He used to make fun of people on welfare!)

Bernard Yomtov writes:

Randy,

Glad you're enjoying yourself. I don't think I made my meaning clear.

You argue above that, since raising the minimum wage a large amount, to say $50, would be plainly ridiculous it must also be wrong to raise it by a little. The point I was trying to make was that this really is not a very good argument. If you eat twenty apples you will get sick, but that doesn't mean that eating one apple is unhealthy.

Just because a lot of something is bad it does not follow that a little bit must also be bad.

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