The Changing Economic Advantage from Private School* Francis Green *Talk based on: Green, F., S. Machin, R. Murphy and Y. Zhu (2010). The Changing Economic Advantage from Private School, IZA Discussion Paper No. 5018, June 2010.

Motivation and Research Questions Private schools, though far less numerous than state schools, play a prominent role in British society. For example, a disproportionate number of those educated at private school achieve higher levels of economic, political and social success in later life. We investigate the changing association between attendance at a private school and subsequent economic success in the labour market. We connect our findings to the changing nature of the market for private schools and to the broader literatures on changes in wage inequality and social mobility.

Structure of Talk Overview of private schools in Britain. Changes in wage differentials between private and state school educated individuals. How much of these changes are driven by differences in educational achievement? Connections to rising wage inequality. Connections to changes in social mobility. Conclusions.

Private Schools in Britain Long history. Advantages motivated around resources, independence, selectivity with peer effects; with outcomes being academic (better qualifications, access to better universities) or non- academic (the ‘rounded individual’, the ‘confident leader’, better ‘soft skills’). Also, access to networks. Sector transformation, after being in decline in the 1960s, towards delivering better academic outcomes, driven by: –need for political legitimacy; decline in monopoly access to Oxbridge; grammar school closures; knowledge economy; increased female labour force participation.

Private Schools in Britain (Continued) – Size of the Private Sector Notes: Source-DSCF 2007; i) Full Time Pupils Only; ii) State Sector Includes; Primary, Secondary, Nursery & Special Schools; iii) Includes both the full-time and the full-time equivalent of part-time teachers; iv) From 1971 onwards, state sector only includes qualified teachers; v) Independent Sector includes Direct Grant Grammar Schools up to and including 1980; vi) From 1990 Independent Sector includes City Technology Colleges; vii) From 2004 Independent Sector includes City Academies.

Private Schools in Britain (Continued) – Fees Notes: Source – Independent Schools Council Census Data, ; Authors’ calculations; RPI, ONS 2006; Prior to 1992 the average fee is not weighted by school size.

Private Schools in Britain (Continued) – Pupil-Teacher Ratios Notes: As for Figure on Size of Sector.

Private Schools in Britain (Continued) – Oxbridge Admissions and Entry Notes: Source: Oxford and Cambridge Admissions Offices.

Private/State Differentials – Existing Evidence Existing evidence shows that on average: - private schooling raises overall academic achievements (e.g. Dearden et al., 2002); - university students who had attended a private school are somewhat less likely than similar students from state schools to obtain a good degree (Smith and Naylor, 2001, 2005). - a significant wage premium in the labour market (e.g. Dolton and Vignoles, % six years after graduation based on sample of 1980 graduates But little known about changes; channels; implications for inequality.

Data 1958 (National Child Development Study, NCDS) and 1970 (British Cohort Study, BCS) cohorts. Very rich on cognitive and non-cognitive variables in addition to having information on private school attendance. Supplemented with constructed cohorts using the BHPS

No ControlsAdditionally Include Family Background Additionally Include Early Age Test Scores Additionally Include Early Age Non- Cognitive Measures NCDS, 1991 BCS, 2004 Cross- Cohort Change NCDS, 1991 BCS, 2004 Cross- Cohort Change NCDS, 1991 BCS, 2004 Cross- Cohort Change NCDS, 1991 BCS, 2004 Cross- Cohort Change (.028)(.033)(.042)(.028)(.032)(.041)(.027)(.031)(.041)(.027)(.031)(.041) Private/State Differentials in Degree Acquisition Dependent variable is probability of gaining a degree

No ControlsAdditionally Include Family Background Additionally Include Early Age Test Scores Additionally Include Early Age Non- Cognitive Measures NCDS, 1991 BCS, 2004 Cross- Cohort Change NCDS, 1991 BCS, 2004 Cross- Cohort Change NCDS, 1991 BCS, 2004 Cross- Cohort Change NCDS, 1991 BCS, 2004 Cross- Cohort Change A. All Private School.228 (.034).348 (.039).120 (.052).078 (.035).202 (.039).124 (.052).070 (.034).197 (.039).127 (.051).072 (.034).201 (.039).129 (.051) Private/State Earnings Differentials, (in early 30s) Dependent variable is log hourly pay

Full Specification (Including Family Background, Early Age Test Scores and Early Age Non- Cognitive Measures) Additionally Control For Highest Qualification NCDS, 1991 BCS, 2004 Cross- Cohort Change NCDS, 1991 BCS, 2004 Cross- Cohort Change (.034)(.039)(.051)(.032)(.037)(.049) The role of better academic qualifications i.e. just over half the increased premium is down to better qualifications

Net Returns From a parent’s perspective investing in private education still generates a good payoff: using the BCS estimate, we calculate a net rate of return of ~ 13% for day school, ~7% for boarders. based on 1980 fee level and a 10-yr private schooling period.

Discussion: 1). Implications for Rising Wage Inequality A key part of rising wage inequality since the late 1970s has been increasing wage gaps between graduates and non-graduates Our results show the increasing effectiveness of private schools in gaining better qualifications This suggests that private schools have been part of the channel through which inequality has increased

Discussion: 2). Implications for Social Mobility If education is thought of as a transmission mechanism, falling mobility can result from rising wage differentials and/or changing sensitivities of education to family income. Intergenerational mobility parameter, β y i child = β y i parent + u i child We can break down into constituent parts, due to income/wage returns and correlates of parental income y i child = θ x i child + e i child x i child = λy i parent + ε i child so that β = θ λ.

NCDSBCSCross-Cohort Change A. All Log(Family Income) (0.003) (0.004) B. Men Log(Family Income) (0.004) (0.006) C. Women Log(Family Income) (0.005)(0.004)(0.006) The effect of family income on the probability of private school attendance (λ) Implication: no significant change in λ; the fall in social mobility is thus more connected to rising private/state earnings differentials

Robustness? Similar findings using BHPS pseudo-cohorts; but: Could sorting account for the findings: i.e. different characteristics of people entering private school? the NCDS/BCS allow rich controls for family background and for early age skills –the impact of these observed factors (demographic characteristics, cognitive test scores, non-cognitive test scores,) do not alter between cohorts –so, no obvious reason to expect that residual unobserved sorting effects to change between cohorts

General Conclusions 1.The premium for attending private school increased between cohorts. 2.Private schools have increased their ability to deliver better qualifications; this contributes a little over a half of the rising premium. 3. From a parent’s perspective investing in private education generates a good payoff. 4.The rise in the premium is likely to be related to the rising graduate pay premium. 5.Since privately educated people come (on average) from richer backgrounds, (a relationship that has not changed over time), the rising premium has contributed to declining social mobility.

No ControlsAdditionally Include Family Background BHPS Pre BHPS Post Cross-Cohort Change BHPS Pre BHPS Post Cross-Cohort Change A. All Private School (.037)(.035)(.051)(.037)(.035)(.051) B. Men Private School (.055)(.046)(.072)(.056)(.044)(.071) C. Women Private School (.048)(.055)(.073)(.049)(.057)(.076) Table A2: Earnings Differentials (Private Versus State School) BHPS