Suppose there's a test. They made the test extremely difficult. Then, it's natural that you would expect that this example of a screening mechanism would result in high quality passers. I would expect so too. Then again, we could be wrong.
In their latest Economic E-Journal paper entitled "Tougher Educational Exam Leading to Worse Selection," Eduardo Andrade and Luciano de Castro shows us instead the possibility of a counterintuitive result: an increase in the exam difficulty may reduce the average quality of selected individuals. Well, their study seems more focused to the labor market but the authors also applied their analysis for teachers and students as well:
"This apparently counterintuitive fact arises because tests do not emphasize all abilities that are important for job performance. A large number of papers show that noncognitive skills not tested in exams are important determinants of the performance in the labor market. When the standard rises, at the margin candidates with relatively low cognitive skills but high noncognitive skills decide not to make the effort to meet the new standard. Candidates who succeed display more cognitive skills but the average level of noncognitive skills falls. As all skills contribute the workers' productivity in the market, the net effect may be a reduction on the average quality (productivity) of those individuals who pass the standard."
Bottomline is, I think Andrade and de Castro's main message is that these tests have to take into consideration non-cognitive aspects, which are likewise important--not just in the labor market but in a school setting as well. I tend to agree more to the point that tests have to be customized to what it is intended for in the first place--and this seems to be one of their recommendations:
"Our results also offer a testable implication: the test is more effective in enhancing productivity when the mix of skills tested is closer to the set of skills needed in the job... it is more important to design the exam in order to test skills directly relevant to the jobs than to raise the standard."
January 25, 2011
January 24, 2011
Taller people are smart too
It has already been a classical finding (not referring to the school of thought) that taller workers receive a substantial wage premium and this wage premium is attributed to non-cognitive abilities. But what about the accepted standard that intelligence (and hence cognitive abilities) exlain the often cited skill-bias wage premium?
Well, in their latest NBER working paper entitled "Height as a Proxy for Cognitive and Non-Cognitive Ability," Andreas Schick and Richard Steckel may have managed to bridge that gap. They recognize that nutrition, which is a determinant of adult height, is also important to cognitive and non-cognitive development:
"Using data from Britain’s National Childhood Development Study (NCDS), we show that taller children have higher average cognitive and non-cognitive test scores, and that each aptitude accounts for a substantial and roughly equal portion of the stature premium."
So, bottomline is, it shouldn't be surprising that we generally see taller people have higher wages. Taller people have higher wages because they're smart enough to land a high-paying job. Or at least firms hiring them think they are smart enough to give them high-paying jobs.
This also explains why most athletic people I know are very intelligent. I mean think about it. You have to be very smart to also have very good hand-eye coordination (basketball players, quarterbacks, receivers, etc.).
Well, in their latest NBER working paper entitled "Height as a Proxy for Cognitive and Non-Cognitive Ability," Andreas Schick and Richard Steckel may have managed to bridge that gap. They recognize that nutrition, which is a determinant of adult height, is also important to cognitive and non-cognitive development:
"Using data from Britain’s National Childhood Development Study (NCDS), we show that taller children have higher average cognitive and non-cognitive test scores, and that each aptitude accounts for a substantial and roughly equal portion of the stature premium."
So, bottomline is, it shouldn't be surprising that we generally see taller people have higher wages. Taller people have higher wages because they're smart enough to land a high-paying job. Or at least firms hiring them think they are smart enough to give them high-paying jobs.
This also explains why most athletic people I know are very intelligent. I mean think about it. You have to be very smart to also have very good hand-eye coordination (basketball players, quarterbacks, receivers, etc.).
January 17, 2011
How effective is the reserve requirement as a monetary tool? Another historical perspective
Maybe not as effective as the Federal Reserve System might think. At least not in the 1930s. In their latest NBER working paper, Charles Calomiris, Joseph Mason, and David Wheelock adopts a microeconomic approach to answering the question, "Did Doubling Reserve Requirements Cause the Recession of 1937-1938?" Their answer: no.
"[W]e find that despite being doubled, reserve requirements were not binding on bank reserve demand in 1936 and 1937, and therefore could not have produced a significant contraction in the money multiplier. To the extent that increases in reserve demand occurred from 1935 to 1937, they reflected fundamental changes in the determinants of reserve demand and not changes in reserve requirements."
It is already a growing consensus that reserve requirements are no longer that effective as it has become less binding for most banks. This is definitely one case where government intervention is unnecessary as the market (the banks) itself will try to change its reserve holdings to adapt to its changing environment, and hence subtly putting a safety net against bankruptcy.
Such safety net is, in the first place, what the Fed's reserve requirements are there for. So there's no need for government to put some redundancy in this case. On the other hand, the use of reserve requirements to control the money supply is again also unnecessary as the market inadvertently causes such policy tool to be non-binding.
"[W]e find that despite being doubled, reserve requirements were not binding on bank reserve demand in 1936 and 1937, and therefore could not have produced a significant contraction in the money multiplier. To the extent that increases in reserve demand occurred from 1935 to 1937, they reflected fundamental changes in the determinants of reserve demand and not changes in reserve requirements."
It is already a growing consensus that reserve requirements are no longer that effective as it has become less binding for most banks. This is definitely one case where government intervention is unnecessary as the market (the banks) itself will try to change its reserve holdings to adapt to its changing environment, and hence subtly putting a safety net against bankruptcy.
Such safety net is, in the first place, what the Fed's reserve requirements are there for. So there's no need for government to put some redundancy in this case. On the other hand, the use of reserve requirements to control the money supply is again also unnecessary as the market inadvertently causes such policy tool to be non-binding.
January 15, 2011
Choose your children's classmates
It seems that it matters that you enroll your kids to a class of his peers, and when I say his peers, I mean of your kid's own age. In his latest Policy Research Working Paper, Liang Choon Wang of the World Bank finds that there's a negative effect of having a class of different ages to that class' academic achievement.
After analyzing exogenous variation in the classroom variance of student age in 14 developing countries to examine its effects on student achievement, Wang finds that:
"[G]reater classroom age variance leads to lower fourth graders’ achievement in mathematics and science. For every one month increase in the classroom standard deviation of student age, average achievement falls by 0.03 standard deviations for both math and science."
It should also be noted that such detrimental effects only affect academic performance; there's no significant negative effects on the behaviors of the students. Expectedly, Wang recommends a strategy of age grouping rather than age mixing in schools in order to achieve higher average academic achievement.
It would be interesting to analyze further the distribution of grades among those students affected since Wang's results are only based on the average grade. Some students may have benefited from the age sorting scheme. In particular, it might not be surprising to find a skewness in the distribution, specially if we find that the older ones are the ones getting higher grades.
After analyzing exogenous variation in the classroom variance of student age in 14 developing countries to examine its effects on student achievement, Wang finds that:
"[G]reater classroom age variance leads to lower fourth graders’ achievement in mathematics and science. For every one month increase in the classroom standard deviation of student age, average achievement falls by 0.03 standard deviations for both math and science."
It should also be noted that such detrimental effects only affect academic performance; there's no significant negative effects on the behaviors of the students. Expectedly, Wang recommends a strategy of age grouping rather than age mixing in schools in order to achieve higher average academic achievement.
It would be interesting to analyze further the distribution of grades among those students affected since Wang's results are only based on the average grade. Some students may have benefited from the age sorting scheme. In particular, it might not be surprising to find a skewness in the distribution, specially if we find that the older ones are the ones getting higher grades.
January 14, 2011
Demand for household maids might go up (or why it's okay for husbands if their wives are not working)
That is, so that wives can concentrate on doing housework. From the latest paper by Mark Bryan and Almudena Sevilla-Sanz in Oxford Economic Papers journal, it seems that husbands , and even their wives, will have lower wages if they engage in housework while maintaining full-time jobs:
"[H]ousework has a negative impact on the wages of men and women, both married and single, who work full-time. Among women working part-time, only single women suffer a housework penalty. The housework penalty is uniform across occupations within full-time jobs but some part-time jobs appear to be more compatible with housework than others."
It's even worst if they have children.
Now, the authors are clear to point out that the causality may not be one-way as you normally would receive from this finding: "[I]ndividuals with more housework responsibilities may be less career oriented and thus earn lower wages." In other words, they choose to find a less-paying job because they know they'll spend some of their productive time on doing household chores.
Since the world has becoming more and more sophisticated, it's not anymore a traditional view that husbands prefer that their wives concentrate on home and the kids. There's now a bigger economic reason behind such preference.
Either that or just simply hire a maid.
By the way, today's my father's birthday and I find this paper very appropriate for today's post. You see, my mother stayed home and became a housewife. It was a mutual decision between my parents so that my father can concentrate on work while my mother takes care of the household and the children. Fortunately, as it stands, such arrangement turned out well. I find myself and my siblings in good standings. Now, some would say my parents are of the traditional type, but then again, my father kept up with the times (being a clever one that he is) and it was primarily an economic reason that drove my parent's decision.
So, Happy Birthday Pa. Thanks for being an economic thinker.
"[H]ousework has a negative impact on the wages of men and women, both married and single, who work full-time. Among women working part-time, only single women suffer a housework penalty. The housework penalty is uniform across occupations within full-time jobs but some part-time jobs appear to be more compatible with housework than others."
It's even worst if they have children.
Now, the authors are clear to point out that the causality may not be one-way as you normally would receive from this finding: "[I]ndividuals with more housework responsibilities may be less career oriented and thus earn lower wages." In other words, they choose to find a less-paying job because they know they'll spend some of their productive time on doing household chores.
Since the world has becoming more and more sophisticated, it's not anymore a traditional view that husbands prefer that their wives concentrate on home and the kids. There's now a bigger economic reason behind such preference.
Either that or just simply hire a maid.
By the way, today's my father's birthday and I find this paper very appropriate for today's post. You see, my mother stayed home and became a housewife. It was a mutual decision between my parents so that my father can concentrate on work while my mother takes care of the household and the children. Fortunately, as it stands, such arrangement turned out well. I find myself and my siblings in good standings. Now, some would say my parents are of the traditional type, but then again, my father kept up with the times (being a clever one that he is) and it was primarily an economic reason that drove my parent's decision.
So, Happy Birthday Pa. Thanks for being an economic thinker.
January 13, 2011
Patience is indeed a virtue
Happy New Year to all! And to commemorate the new year, I find this interesting paper that is surprisingly very appropriate to yours truly. You see, one of my new year's resolution to my family is to become more patient. In many occassions, I find myself busy with many things at the same time that I regrettably easily lose my temper to a family member. To help me keep my resolution for the new year, discovering this excellent paper is a way for a good start.
The Chinese proverb "Patience is a virtue" is one of those ageless quotes that seems to ring true every now and then. Experimental economics has brought it even further.
In their latest paper for the Institute for the Study of Labor, Matthias Sutter, Martin Kocher, Daniela Rützler, and Stefan Trautmann studied 661 children and adolescents in an experiment and found that there's a link between impatience on the one hand and health and savings decisions on the other:
"More impatient children and adolescents are more likely to spend money on alcohol and cigarettes, have a higher body mass index (BMI) and are less likely to save money."
I knew there is a wisdom behind this old Chinese proverb. So it seems it's not just that impatience causes stress which eventually is detrimental to your health (then again maybe it is stress that causes one to resort to alcohol and cigarettes).
The same way we can think of other old proverbs, modern economics can give us tools to check which old quotes are applicable and which ones are not. Sutter and the others have given proof of how true this one Chinese proverb is.
Now, what do old quotations say about the cause of impatience? That can help me too.
The Chinese proverb "Patience is a virtue" is one of those ageless quotes that seems to ring true every now and then. Experimental economics has brought it even further.
In their latest paper for the Institute for the Study of Labor, Matthias Sutter, Martin Kocher, Daniela Rützler, and Stefan Trautmann studied 661 children and adolescents in an experiment and found that there's a link between impatience on the one hand and health and savings decisions on the other:
"More impatient children and adolescents are more likely to spend money on alcohol and cigarettes, have a higher body mass index (BMI) and are less likely to save money."
I knew there is a wisdom behind this old Chinese proverb. So it seems it's not just that impatience causes stress which eventually is detrimental to your health (then again maybe it is stress that causes one to resort to alcohol and cigarettes).
The same way we can think of other old proverbs, modern economics can give us tools to check which old quotes are applicable and which ones are not. Sutter and the others have given proof of how true this one Chinese proverb is.
Now, what do old quotations say about the cause of impatience? That can help me too.
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