Gary Burtless

Does Money Matter? The Effect of School Resources on Student Achievement and Adult Success.

Many believe that American education can only be improved with a sizable infusion of new resources into the nations schools. Others find little evidence that large increases in spending lead to improvements in educational performance. Do additional school resources actually make any difference?The evidence on this question offers a striking paradox. Many analysts have found that extra school resources play a negligible role in improving student achievement while children are in school. Yet many economists have gathered data showing that students who attend well-endowed schools grow up to enjoy better job market success than children whose education takes place in schools where resources are limited. For example, children who attend schools with a lower pupil-teacher ratio and a better educated teaching staff appear to earn higher wages as adults than children who attend poorer schools.This book, which grew out of a Brookings conference, brings together scholars from a variety of disciplines to discuss the evidence on the link between school resources and educational and economic outcomes. In a lively exchange of views, they debate whether additional spending can improve the performance of the nations schools.In addition to editor Gary Burtless, the contributors include Eric Hanushek, University of Rochester; James Heckman, University of Chicago; Julian Betts, University of California, San Diego; Richard Murnane, Harvard University; Larry Hedges, University of Chicago; and Christopher Jencks, Northwestern University.Dialogues on Public Policy

The Decline in Saving: Evidence from Household Surveys

THE RATE of national saving in the United States declined precipitously in the 1980s. From World War II to 1980 the net saving rate averaged 8 percent of national income; today the rate is just 2 percent. While much public discussion has focused on the growth in the federal budget deficit as a source of this decline, a larger part of the drop in saving has come from a falloff in the rate of private saving. The extent of decline in the private saving rate is a surprise for several reasons. The slide comes after several decades in which the saving rate fluctuated within a very narrow range. The narrowness of that range inspired many economists to treat the private saving rate as an uninteresting constant. Second, the largest part of the decline occurred, ironically, after the government made an increase in saving a major objective of economic policy and redesigned the tax system to increase effective after-tax rates of return and promote saving. Finally, the decline coincided with a dramatic increase in real market interest rates, which should have greatly strengthened saving incentives. Economists have no shortage of theories to explain the decline in saving. Given the previous stability of the saving rate and the one-time nature of the decline, however, it is virtually impossible to sort out the

Demographic Change, Rising Earnings Inequality, and the Distribution of Personal Well-Being, 1959 1989*

This paper uses new methods to determine the sources of the sharp fall and then the steep rise in personal income inequality between 1959 and 1989. The increase in the proportion of single-head families tended to boost inequality over the entire period. Forty percent of the reduction in income inequality in the 1960s occurred because of the decline in earnings inequality among male heads of families; more than one-third of the increase in inequality after 1969 occurred because inequality in male earnings soared. Since 1979 females’ gains in earnings have increased inequality because these gains have been concentrated increasingly in families with high incomes

Social Security, Unanticipated Benefit Increases, and the Timing of Retirement

Between 1969 and 1972, real U.S. social security retirement benefits rose by 20%. The rise was unanticipated and followed over 15 years of relatively constant real benefits. This paper proposes a model of retirement behaviour in which workers respond differently, although in a theoretically consistent manner, to the anticipated and unanticipated components of the social security benefit they can receive upon retirement. The retirement age decision in the presence of unanticipated benefit changes is shown to be a special case of utility maximization under a nonlinear budget constraint. The model is estimated using the Longitudinal Retirement History Survey.

The Joint Choice of Retirement Age and Postretirement Hours of Work

In this paper we develop and estimate the first complete and internally consistent model of the effect of Social Security on the labor supply of the aged. We develop a simple life-cycle model that captures the effect of Social Security on the joint choice of the date of retirement and hours of work immediately after retirement. We show that in the presence of Social Security the budget constraint relating these choices is highly complex and nonlinear, and we develop a maximum likelihood procedure for the model that yields consistent parameter estimates. Our procedure avoids the selectivity biases present in prior studies that have ignored the nonlinearity of the constraint or have examined only self-selected subsamples that exclude nonretirees. Our results show that Social Security has a significant, though relatively small, effect on the age of retirement and postretirement hours of work, and that the effect of Social Security grows with advancing age.

Effects of growing wage disparities and changing family composition on the U.S. income distribution

Abstract U.S. income inequality soared after 1979. The present paper estimates the contribution of increased earnings inequality to the surge in overall income inequality between 1979 and 1996. The direct contribution of increased earnings inequality is surprisingly modest. Even if male and female earnings inequality had remained unchanged at their 1979 levels, about two thirds of the observed increase in overall U.S. inequality would have occurred. Other factors contributing to higher overall inequality include the growing correlation of husband and wife earned incomes and the increasing percentage of Americans who live in single-adult families, families that typically have much more unequal incomes than husband–wife families.

Are Classical Experiments Needed for Manpower Policy

The critical element that distinguishes classical experiments from all other modes of analysis is the random assignment of treatment to enrollees in a study. This paper examines the major methodological advantages of random assignment for the purpose of estimating the effectiveness of current manpower policy. It also reviews the claimed methodological and ethical objections to experiments. The main valid objection to an experiment is neither methodological nor ethical, it is the experiments cost in relation to that of nonexperimental methods of analysis. The authors argue that the offsetting gain from experimentation is the inherent reliability of experimental estimates of treatment effects. The paper offers a simple framework for deciding whether the improved reliability of treatment-effect estimates is worth the added cost of experimentation. It concludes with an assessment of the actual value of experiments for evaluating current manpower policies.

A future of lousy jobs? : the changing structure of U.S. wages

Politicians, journalists, and the public have expressed rising concern about the decline - or percieved decline - in middle-class jobs. The U.S. work force is viewed as increasingly divided between a prosperous minority that enjoys ever-rising wages and a less affluent majority that struggles harder each year to make ends meet. To determine whether and why this view of the job market is accurate, labor market economists anaylze trends in the distribution of jobs and wages over the past two decades and attempt to forecast the future course of American earnings inequality. McKinley L. Blackburn, David E. Bloom, and Richard B. Freeman assess the reasons behind the deterioration of earnings and job opportunities among less skilled men. They consider the impact of changes in industrial structure, declines in unionization, and trends in the level and quality of schooling for men who have limited skills and education. Gary Burtless examines the effect of the business cycle, within and across different regions of the United States, on earnings inequality and analyzes the effects of demographic change on inequality over the past twenty years. Rebecca M. Blank studies the rise of part-time employment and its impact on wages, fringe benefits, and the quality of jobs. Linda Dachter Loury focuses on the effect of the baby boom and baby bust on demand for schooling among new labor market entrants. If young entrants are discouraged from seeking college training by the high cost or low payoff of schooling, the long-term impact will be a gradual decline in the skills of the U.S. work force. Robert Mofitt analyzes the effect of welfare state programs on the growth of low-wage jobs, and the extent towhich the welfare reforms of the eighties have affected low-income workers.

The Impact of Aging on Financial Markets and the Economy: A Survey

All major industrial countries will experience significant population aging over the next several decades. In both academic circles and the business press it is widely believed that population aging will have important effects on financial markets because of its expected impact on saving rates and the demand for investment funds. This paper reviews the literature on the macroeconomic and asset market effects of population aging, focusing on four related issues: (a) The impact of population age structure on aggregate household saving; (b) The effect of population aging on investment demand; (c) Evidence on the influence of population age structure on financial market asset prices and returns; and (d) Effects of globalization on our interpretation of the impact of demographic change.

Work, Health, and Income among the Elderly

Contents include: Introduction and Summary Public Policy Implications of Declining Old-Age Mortality Aging the Ability to Work: Policy Issues and Recent Trends Occupational Effects on the Health and Work Capacity of Older Men Involuntary Early Retirement and Consumption Life-Cycle Labor Supply and Social Security: A Time-Series Analysis Life Insurance of the Elderly: Its Adequacy and Determinant