Common Sense and the Marginal Student
Common sense says that marginal consumer of a product – the person who say “Eh, why not?” before he buys – benefits less from his purchase than the product’s average consumer. This is clearly true for consumption decisions: The typical person at the opera clearly enjoys the show more than the reluctant newbie whose friends talk him into going.
This principle – the marginal person gains less than the average – is equally plausible for investment decisions. The typical college student will earn a larger return from his education than the kid who grudgingly enrolls to get his parents off his back. When I share this claim with practicing labor economists, however, they’re quick to rebuke me. Don’t I know that instrumental variables methods show that the marginal student gains at least as much – if not more – than the average student?
My main technical objection is that labor economists inappropriately focus on completed education rather than attempted education. But that aside, I simply consider common sense more reliable than instrumental variables. Fancy econometrics reduces my confidence in my original position, but only slightly.
Now just yesterday, I learned that Heckman and co-authors have a new NBER working paper vindicating the common sense view that marginal students earn a lower return. Their evidence against all the fancy econometrics is… even fancier econometrics:
This paper estimates the marginal returns to college for individuals
induced to enroll in college by different marginal policy changes. The
recent instrumental variables literature seeks to estimate this
parameter, but in general it does so only under strong assumptions that
are tested and found wanting… Our empirical analysis shows that returns are
higher for individuals with values of unobservables that make them more
likely to attend college.
It would be tempting, but dishonest, to claim that the latest research “proves me right.” I was convinced that school helped the marginal student less years before I heard about Heckman’s results. I doubt that reading his research in depth will make me any more confident. Yes, I’m glad to see Heckman lending his Nobel status to the common sense position. But in a perfect world, the common sense position wouldn’t need his status to survive.
P.S. Dan Klein and I are speaking in Madison, Wisconsin tonight (Monday 10/25). If you make the talk, please say hi.