Arnold Kling  

The Goldin-Katz Swindle

Libertarian Misanthropes... Quarterback, Shepherd, Project...

On p. 96 of their new book, Claudia Goldin and Lawrence F. Katz provide a table on the composition of the U.S. labor force in terms of educational background, based on historical census data. The percentage of high school graduates and above is as follows:

1960 50.5 %
1980 79.3 %
2000 91.3 %

As you can see, the percentage of high school graduates rose much more rapidly from 1960-1980 (28.8 percentage points) than from 1980-2000 (12.0 percentage points). By this measure, the rate of improvement in human capital in the United States stalled after 1980. Because of this, as Goldin and Katz point out, in the "race" between the growth of skill-biased technology and the growth of education in the work force, the latter has slowed down. They argue, convincingly, that this slowdown has caused skill premiums to rise, resulting in more income inequality.

What went wrong?

Well, for one thing, it is arithmetically impossible for the graduation rate to rise 28.8 percentage points from a level of 79.3 percent. On p. 325, Goldin and Katz write, "An upper bound exists for a graduate rate; it cannot exceed one."

So why did they write their book? Mostly, it is a swindle.

Instead of focusing attention, as I just did, on the high-school graduation rate, they emphasize an estimate of average total number of years of schooling, which they call "educational attainment." On p. 19, they write,

After increasing nonstop for the first three quarters of the twentieth century, educational attainment among the native-born population slowed considerably during the last quarter century. The educational attainment of a child born in 1975 was just 0.50 years more than that of his or her parents born in 1951, but the education attainment of a child born in 1945 was 2.18 years more that that of his or her parents born in 1921.

The swindle is that in order for the average years of schooling to increase at the same rate, we would have had to increase the college attendance and graduation rates in recent years as rapidly as we increased high school graduation rates from 1900 through 1960.

Goldin and Katz recognize this (they do understand arithmetic), but it leaves the question of whether it is possible to dramatically increase the college attendance and graduation rates. They say that it is possible, and so they would make it a huge policy priority to try to get more young people into and through college. But at this point, they stop using their own data and start relying on meager other sources, or none at all.

On p. 336, they write,

One possibility is that young people might not actually benefit from going to college. The rate of return we have estimated may not be applicable to some young people who do not currently attend or complete college...But that possibility appears not to be the case.

...carefully executed studies using plausibly exogenous variation in educational attainment find high rates of return to further schooling.

The only backup for this assertion is the following footnote:

Card (1999, 2001) provides critical and comprehensive reviews of recent studies using such "natural experiments" to estimate the returns to schooling. More recently, Oreopolous (2007) finds that post-1970 changes in state compulsory schooling laws to raise the minimum school-leaving age above 16 years modestly but statistically significantly raise the educational attainment of affected cohorts and generate substantial labor market returns to such increased schooling.

In other words, Goldin and Katz are suggesting that the issue of marginal vs. average return to college has been settled by a study of compulsory schooling laws for 16-year-olds.

On p. 348, they write,

The K-12 system is less than perfect for many students, but it is important to recognize that schools are essentially failing particular students. Those left behind by the system are mainly minority children in inner-city schools who become youths who are not college ready.

The implication is that everyone aged 18 other than inner-city blacks is college ready. They cite no sources to support this implication, and I beg to differ. The students I taught at George Mason were not college ready, and they were not inner-city blacks, either.

I give Goldin and Katz an A+ for their contribution to positive economics, meaning the analysis of data. The compilation of statistics on education by cohort is extremely valuable. Their assessment that the increase in the educational wage premium reflects a slowdown in supply growth in addition to continued demand growth is both original and well-supported by their research.

However, as you can tell, I would give their normative economics (policy recommendations) a much lower grade. The level of empirical support is as flimsy in that chapter as it is firm in the positive chapters.

COMMENTS (14 to date)
Floccina writes:

Rather than focus on number of years spent in school wouldn't it be better to focus what do people not know that is holding them back? The next question is can they learn it, do they have the ability to know it?

Maybe school is not the answer but maybe TV or the internet. Maybe our credentialing is messed up, in that it asks how many years of schooling did you go through instead of do you have the needed knowledge and ability.

Or maybe all the education chatter is just BS.

BTW as a computer programmer I tend to think that if people cannot use computers we need to write better software. Young programmers tend to blame the users, I always say that if users do not understand how to use the software it is our fault.

Slam writes:

Here is the definition of "Swindle" from

–verb (used with object) 1. to cheat (a person, business, etc.) out of money or other assets.

2. to obtain by fraud or deceit.
–verb (used without object)

3. to put forward plausible schemes or use unscrupulous trickery to defraud others; cheat.

4. an act of swindling or a fraudulent transaction or scheme.

5. anything deceptive; a fraud

Don't you think there is a better word to describe your disagreement with the argument in their book?

Floccina writes:

BTW I have pondered the huge differences in salary between say a fast food worker and a computer programmer and have model that I am toying with in my head about power. The differential seems to persist even in times and places where there is a surplus of computer programmers. I know from having hired a programmer that you can hire recent graduates with no experience and not great grades, but some of whom will become very good programmers, for 20K a year but you will not keep them and as soon as they have one years experience they will leave and the first year’s productivity is generally very low. An engineer is hard to train there is a lot of specific knowledge that goes into making him productive and so it is costly to a company to lose him and so he has power and they pay him a higher salary than would be required to get another person to be a computer programmer. The fast food worker is easy to train and so has less power to demand higher wages. Power also comes into play for CEO’s and celebrities. The CEO has power because of his position and leverage and so can demand a huge salary. Celebrities start out with little power but gain as people get to like them. Take a record company made music star the company makes that star but once the people get to like the artist he has power to demand money.

Arnold Kling writes:

I stand by the term "swindle." When you spend hundreds of pages doing analysis (which is fairly robust, in my opinion) and then shift to making policy recommendations that, on closer scrutiny, do not follow from the analysis, it is a swindle.

When you take a categorical variable, namely whether or not someone graduates high school, and act as if it is a linear variable, measuring years of schooling, that is a swindle.

Slam writes:

Doesn't this contradict the thrust of your famous essay on Type C and Type M arguments that you directed at Krugram? Based on the commonly used definition of the word, you are basically implying purposeful fraud and deceit by Goldin and Katz. You could disagree with their conclusion or analysis - and that would be fine. But you are going beyond that by sticking to this term. You are basically saying something about their motives here - and that's not diminished by the fact that you find their econometrics good.

Chuck writes:

The way I look at the graduation rates is this:

1960 50.5 %
1980 79.3 %

In 20 years, the non-graduated rate was cut by 60% (from 50% to 20%).

1980 79.3 %
2000 91.3 %

In 20 years, the non-graduated rate was cut by 50%. (from 20% to 10%).

That's progress, in my eyes.


Arnold Kling writes:

The definition of swindle does not include motive. It just says "deception." It could include self-deception, which in this case probably applies.

steve hsu writes:

Have Goldin and Katz seen this data from Nie et al.? It may be that increased access to higher ed. does not add much to human capital if it means admitting less able individuals.

Education and Verbal Ability over Time: Evidence from Three Multi-Time Sources

Nie, Golde and Butler

Abstract: During the 20th century, there was an unprecedented expansion in the level of educational attainment in America. Using three separate measures, this paper investigates whether there was a concurrent increase in verbal ability and skills. Changes in verbal ability in the general population as well as changes in the verbal ability of graduates of different levels of education are investigated. An additional investigation of how changes in the differences between males' and females' educational attainment are associated with changes in differences between their respective verbal abilities follows. The main finding is that there is little evidence that the large increase in educational attainment has resulted in an increase in any of the measures of verbal abilities and skills.

Lord writes:

How can over 90% be high school graduates if dropouts are 25-50%?

Steve Sailer writes:

The only way you can get to 90+% high school graduation rates in America is to count GEDs and similar dubious substitutes. Nobelist James Heckman looked at the high school dropout rate issue carefully in 2007 and found that the dropout rate had bottomed out at around 20% in 1970 and risen to about 25% by the beginning of this decade (not including recent immigrants -- it's worse when you include recent immigrants).

For a summary of Heckman's paper, see:

Dr. T writes:

Since public schools often are rated based on graduation rates, there is a strong incentive to fudge the data. In many instances, the schools simply assert that a missing student moved to another school district (though they never received a records and transcript request from another school). Because of this, researchers in the education field should not be relying on the self-reported graduation rates of public school districts or states.

Anyone who teaches college today can tell you that sending more students to college is not the answer to achieving a more productive and wealthy society. When I graduated high school in 1973, ~25% of high school grads went to college. Almost all of the remaining 75% were not considered college material. Today, with no significant improvement in public school education, almost 70% of high school grads go to college. Only a handful of the additional 45% of grads are truly college material. The rest would have failed college in the 1970s. Now, they go to colleges with watered down curricula and get watered down BA degrees that mean little.

Our current trend has decreased the productivity of our smartest young adults by making them spend 4 years learning little at Watered Down U and forcing them to get a masters degree or doctorate to learn enough to be productive. All this so we can give 'feel-good' degrees to young adults who should have gone to a 1- or 2-year trade school to learn air conditioning repair or horticulture or how to be a chef.

What do they say about Bayh-Dole? I keep looking for this book in bookstores and can't find it.

R. Richard Schweitzer writes:

For years, the public education systems, particularly in the concentrated urban areas, have concentrated on "processing" the young population through the various grade levels.

Graduation came to signify completion of the processing rather than some specific level of learning.

Moving on to post-secondary schooling, the curricula contents, often responsive to the deficiencies in the learning levels of the entrants, as well as to social policy objectives favored by dominant faculty factions, have been reduced.

The effects of the deficiencies in attained secondary learning levels and the changes in the quality of curricula contents can not be examined for any meaningful use by the forms of statistical and anecdotal references cited.

R. Richard Schweitzer

britman writes:

I agree with dr. T about the incoming students. at my univ (an "opportunity institution" with one third first generation college students) in response to monetary pressures to increase enrollment and also address the quality problem,it appears that a bi-modal student population is emerging---one enrolling in the "honors college" which I suspect includes the reasonably well pregared student and the remainder of the students who take remedial courses and choose weak courses of study. It is a challenge when they are mixed in the same class.

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