1. INTRODUCTION TO SCIENTIFIC SOCIOLOGY Sociology 101 Section 9: Introduction to Sociology Education, part 2 Professor Jonathan Kelley Office Hours, contact #s, etc: See the course's WebCT main page

2. Education (review) Any questions?

3. Education in the USA

4. Education in Australia: Changes over time Source: IsssA, various years. N = 29,355. Year born

5. Australia, the USA and Canada compared Year 12 completion has always been high in the USA Canada caught up with the USA in recent decades Australia remains well behind, like most European nations Levels of university education are much more comparable, with the USA only a little ahead of Canada and Australia

6. Legitimate rewards to education (new material)

7. Questions: Legitimate returns to education Nowadays in Australia/Hungary/Poland workers with a primary school education earn about $25,000 a year by the time they are 30 or 35 years old. Now please think about those who spend longer in school... (a) How much do you think a 30 year old who has finished secondary school should earn? $ ___ ___ ___ thousand per year (b) How about a typical university graduate who did a three year/Bachelor of Arts degree course? $ ___ ___ ___ thousand per year (c) How about someone who has completed a doctoral degree (PhD)? $ ___ ___ ___ thousand per year

8. Predictions from theory Aristotle: Productivity should be rewarded So education should be rewarded in all nations Human capital theory (economists ’ favorite) Education should be rewarded in Australia and other capitalist societies, because investments in education need to match the returns on investments in physical capital Education should not be rewarded in Communist societies according to human capital theoyr It is not really an investment – the government pays the costs and supports the students, so going to university is just like any other government job There is no alternative investment in physical capital

9. What people think is the proper reward Almost everyone believes education merits higher pay Despite decades of low returns to human capital and persistent propaganda in favour of manual labour, Hungarians and Poles endorse at least as high returns to education as Australians. There is substantial variation in the amount people think is proper. There are few systematic differences by education, class, or demography.

10. Education and income: What is the actual reward? (new material)

11. Earnings in the USA Average is about $30,000 These are full-time male workers. Lots of variation: Some 2/3 of the people within about $20,000 of the average Income is skewed with not so much variation at the bottom and quite a lot at the top EARNINGS: FREQUENCIES (adjusted to 2006 income levels; approximate) Earnings Percent ------------------------- 10,000 6 15,000 6 20,000 6 25,000 11 30,000 9 <-- mean 30,000 35,000 10 40,000 12 45,000 8 50,000 5 55,000 6 60,000 3 65,000 4 70,000 2 75,000 2 80,000+ 12 ------------------------- Total 100%

12. Earnings Goes up slowly to 11 years Some random noise, as are few cases About 8000 cases Full-time men Then a big jump at high school Goes up more for the next few years Then a big jump at university AVERAGE EARNINGS FOR EACH LEVEL OF EDUCATION ------------------------- RECODE of edyrsq mean earnings ------------------------- 7 26,990 8 32,698 9 29,527 10 31,873 11 32,803 12 38,053 <-- big jump here 13 39,044 14 41,972 15 42,558 16 52,197 <-- big jump here too 17 52,486 18 57,911 19 64,356 20 64,610 ---------------------------

13. First approximation Key figure: Everyone starts with about $3500 Key figure: Each year of education then increases income by about $3000 ROUGH MODEL (SIMPLE LINEAR MODEL) Number of obs = 6938 R-squared = 0.1334 Root MSE = 22870 ----------------------------------------------- earnUSA | Coef. Std. Err. t -------------+--------------------------------- edyrsi | 2905.759 88.91915 32.68 _cons | 3681.469 1238.055 2.97 -----------------------------------------------

14. Implications You can compute the average income for any educational level In this simple model, every year of education gives the same reward Or more precisely: Earnings = $3681 + $2905 * Education (from the regression) So: Earnings = $3681 + $2905 * 8 years of education = $27,000 dollars Earnings = $3681 + $2905 * 9 years of education = $30,000 dollars Earnings = $3681 + $2905 * 10 years of education = $33,000 dollars Earnings = $3681 + $2905 * 11 years of education = $36,000 dollars Earnings = $3681 + $2905 * 12 years (ie finish high school) = $39,000 dollars ETC.... Earnings = $3681 + $2905 * 16 years (ie finish university) = $50,000 dollars

15. A better model Don ’ t worry about the details Key point is that it gives a bonus for high school completion, and for university That is more realistic, as we have already seen A MORE COMPLICATED REGRESSION (don't worry about the details) Number of obs = 6938 R-squared = 0.1440 Root MSE = 22735 --------------------------------------------- earnUSA | Coef. Std. Err. t -------------+------------------------------- edyrsi | 1761 203.506 8.65 edXsqi | 114 23.103 4.95 year12 | 2942 1200.092 2.45 uni | 5429 1147.883 4.73 _cons | 13681 1904.585 7.18 ---------------------------------------------

16. Predicted earnings This is our best estimate ------------------------- edyrsq predicted earnings ------------------------- 8 30,000 (rounded) 9 31,000 10 32,000 11 33,000 12 38,000 <-- $3,000 extra 13 40,000 14 42,000 15 44,000 16 52,000 <-- $5,500 extra (uni instead of high school= $14,000 or put differently, 37% more than high school ) 17 55,000 18 58,000 19 61,000 20 65,000 (grad school instead of uni= $13,000 or, put differently, 71% more than high school ) ------------------------

17. Economists ’ human capital logic Investment Mostly income forgone Returns per year Compare to returns from physical capital 9% for university education Only 6% for graduate school RETURNS TO Uni education instead of high school in annual income ("Human capital") Investment: About 4 * $38,000 =$152,000 in income forgone + tuition & books - earnings, scholarships, from parents, etc Total: say $152,000 Return $14,000 per year(from above) % return: $14,000 / $152,000 = 9% Compare with investment in material capital, eg a backhoe -------------------------------------------------------- RETURNS TO GRAD SCHOOL Investment: Income forgone = 4 * 52,000 = about $208,000 Return $13,000 per year (from above) %Return: $13,000/$208,000 = 6%

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