kitchen table math, the sequel: "Investment in Humans, Technological Diffusion, and Economic Growth"

Friday, June 27, 2008

"Investment in Humans, Technological Diffusion, and Economic Growth"


Most economic theorists have embraced the principle that certain kinds of education--the three R's, vocational training, and higher education--equip a man to perform certain jobs or functions, or enable a man to perform a given function more effectively. The principle seems a sound one. Underlying it, perhaps, is the theory that education enhances one's ability to receive, decode, and understand information, and that information processing and interpretation is important for performing or learning to perform many jobs.

[snip]

We shall consider now the importance of education for a particular function requiring great adaptation to change. We then propose two models which these considerations suggest.


II. The Hypothesis

We suggest that, in a technologically progressive or dynamic economy, production management is a function requiring adaptation to change and that the more educated a manager is, the quicker will he be to introduce new techniques of production. To put the hypothesis simply, educated people make good innovators, so that education speeds the process of technological diffusion.

Evidence for this hypothesis can be found in the experience of United States agriculture. It is clear that the farmer with a relatively high level of education has tended to adopt productive innovations earlier than the farmer with relatively little education. We submit that this is because the greater education of the more educated farmer has increased his ability to understand and evaluate the information on new products and processes disseminated by the Department of Agriculture, the farm journals, the radio, seed and equipment companies, and so on. The better educated farmer is quicker to adopt profitable new processes and products since, for him, the expected payoff from innovation is likely to be greater and the risk likely to be smaller; for he is better able to discriminate between promising and unpromising ideas, and hence less likely to make mistakes. The less educated farmer, for whom the information in technical journals means less, is prudent to delay the introduction of a new technique until he has concrete evidence of its profitability, like the fact that his more educated friends have adopted the technique with success.

Investment in Humans, Technological Diffusion, and Economic Growth
Richard R. Nelson and Edmund S. Phelps
The American Economic Review, Vol. 56, No. 1/2, (Mar. 1, 1966), pp. 69-75



Apparently Nelson-Phelps is the classic paper on education and technology diffusion.

That educated workers tend to be early adopters is one of the main reasons why the 20th century was the American Century. The U.S. educated all children in the liberal arts, while the Europeans educated only the elite, tracking the rest of its children into vocational education. Europeans saw the American model as foolish and wasteful. What use has a farmer for algebra!

But the Americans were right. Education has several "indirect" effects on economic growth beyond the direct effect of equipping a child with the skills he will need to earn a living as an adult. These indirect effects exist regardless of whether a particular boy or girl will or will not "use" algebra or Latin in his career.

One of those indirect effects is the fact that educated workers can and will adopt a good new technology sooner rather than later. Educated workers make smart early adopters.

I think the effect of this has to be enormous. Temple (Grandin) often tells me that designing new technologies is the easy part; getting an industry to adopt a new technology is what's hard. In the real world people don't beat a path to your door just because you've built a better mousetrap.

Here are Goldin and Katz:

Suggestive evidence exists that the magnitude of the indirect effects of education on labor productivity is substantial. For example, firms and establishments with more educated workers have long been found to be earlier adopters of new technologies and have been shown recently to garner greater productivity benefits from information-technology investments.

The Race between Education and Technology
Claudia Goldin & Lawrence F. Katz
p. 41

A roaring economy doesn't happen when you have an educated elite inventing groovy new technologies.

You need an educated mass to buy the stuff.

Not to mention RTFM.

Or, better yet, WTFM.


Steve Levitt summarizes The Race in 2 sentences
Jimmy graduates

The anemic response of skill investment to skill premium growth
The declining American high school graduation rate: Evidence, sources, and consequences
Pushy parents raise more successful kids

The Race Between Education and Technology book review
The Race Between Ed & Tech: excerpt & TOC & SAT scores & public loss of confidence in the schools
The Race Between Ed & Tech: the Great Compression
the Great Compression, part 2
ED in '08: America's schools
comments on Knowledge Schools
the future
the stick kids from mud island
educated workers and technology diffusion
declining value of college degree
Goldin, Katz and fans
best article thus far: Chronicle of Higher Education on The Race
Tyler Cowan on The Race (NY Times)
happiness inequality down...
an example of lagging technology diffusion in the U.S.

the Times reviews The Race, finally
IQ, college, and 2008 election
Bloomington High School & "path dependency"
the election debate that should have been

13 comments:

SteveH said...

"These indirect effects exist regardless of whether a particular boy or girl will or will not 'use' algebra or Latin in his career."

Well, schools don't believe that anymore. The technology angle now gets translated into statistics (understanding graphs) and computer literacy, instead of algebra and Latin. No matter how technologically advanced they make it sound (blogs in my son's 6th grade instead of learning to write), it's still a vocational education, not liberal arts one.

They are great at making less sound like more.

Anonymous said...

Catherine:

Your links at the bottom of the post are pure gold! One of them, The Anemic Response of Skill Investment to Skill Premium Growth, is pretty hard to read but raises an interesting point.

The article explores why, in spite of a financial advantage for having high skills, the number of people with high skills seems relatively constrained. It asks why kids seem to be myopic in their investment decisions (written by an economist, can you tell) and posits that kids "might forego valuable investment opportunities in order to protect their consumption while young".

This really struck a cord with me. I believe the foregone investment decision the author is describing is something that kids do every day, "Hmmm, play with video games (the young consumption) or do my homework (the investment for the future)."

He also seems to imply that those that do have high skills actually have more high skills than kids from an earlier day. The problem is that increasingly, today's high skill kids are coming from only families that are already economically advantaged and there aren't enough of these to keep up with the demands for high skill. It's as if the well off parents recognize the IRR of education and are making the investment decisions for their offspring, whereas low SES parents may be leaving the decision up to their kids.

My kids are almost entirely low SES and they live in a distressed city but they all seem to have lots of goodies. They have multiple pairs of $100 sneaks, portable and non portable video games, season pass to Six Flags, Ipods, Itunes, latest fashion, and on and on. This is all 'young consumption' and it's competing for face time with these youngsters against boring crap from school.

It strikes me that from an adult's point of view, especially an adult in a white bread suburb, these kids are distressed and are therefore incented to 'get out'. But, from that kid's point of view, he's living large. He's got all the goodies.

In a perverse irony it might even be that the goodies are compensation for what the care giver knows is a crummy environmental reality. This just locks in the crummy reality.

This economic investment decision point of view might also explain why third world kids are out smarting us (pun intended). They're simply making different (better) investment decisions. It also could explain why the offspring of parents from the depression were induced to make better decisions in the last half of the 20th century than those that are being made now.

Catherine Johnson said...

Steve

Absolutely. Progressive ed has always pushed vocational ed for the masses.

I STILL haven't read Left Behind, so I don't know how the teachers' colleges made the transition to urging vocational ed for everyone (it's possible they were never keen on Latin & algebra for anyone - I don't know).

But somehow we have come to a pass where public education is defined as vocational.

The concept of an "educated person" is gone.

Catherine Johnson said...

Paul - from what I've seen, both with Christian & reading various surveys, low-income parents desperately value education. Black and Hispanic parents routinely say they want the teacher who raises test scores (white parents don't say this! -- I'll get the link sometime later - the survey was in Education Next).

Christian told me an infuriating story about his neighborhood when he was growing up. When the first day of school rolled around, all the parents bought their children brand-new clothes, and everyone got haircuts.

There were so many kids getting haircuts that there weren't enough barbers to go around, so back-to-school week spawned a whole group of August entrepreneurs who set up barbershops on their front porch & cut kids' hair for 50 cents.

I have never in my life seen white people treat back-to-school week with such reverence. That's why I found the story so infuriating. You almost can't read a story on the achievement gap without getting the boilerplate about how low-income parents "don't value" education. Meanwhile everything I've seen with my own eyes & read in surveys tells me that if anything low-income parents value it more.

btw, I saw the same thing at the 8th grade graduation. The handful of black children were generally better dressed than their white peers & their parents were much better dressed. A number of the parents were carrying bouquets of flowers.

Also, I don't see a lot of future orientation amongst the affluent college-directed pre-teens here. (I assume that changes in high school.) If C. didn't have his whopping big Jesuit assignment list he'd spend his summer going to Teenscape (a terrific program the village rec department offers) & playing video games in his "down" time.

To some degree, I don't think kids' this age understand time the way we do.

Last night we took a big crowd to Dave & Buster's for a graduation celebration. A couple of them got busted for squeezing inside the dangly-fisher-thingie & pulling out a big stuffed bear. The grownups all went in and dealt with it & the manager said the main culprit couldn't go back to the game without an adult.

I told the kid, who is a very close friend of Chris' - probably destined to be a lifelong friend - he was out for good.

Now this kid IS college-oriented. He's got the mom I call the Gold Star Homework Mom & the kids call the Homework Nazi.

He sat next to me rotating amongst: between, "IS THIS GOING TO GO ON MY COLLEGE APPLICATION???" (Christian told him "You're going to Westchester Community College") and "AM I GOING TO GET IN TROUBLE?" -- and "I'm going back in. They said I can go back in with an adult."

The two things -- MY LIFE IS RUINED, THEY'RE CALLING THE POLICE and I'M GOING BACK INSIDE -- seemed to have nothing to do with each other.

It was very funny.

This is why we have parents.

Catherine Johnson said...

oh heck

Blogger ate my last comment...

Anonymous said...

Read the article. High skill grads are coming from high skill families in spite of what you're experiencing.

I too have seen low SES parents that value education but this is about the values that are subtly contributing to the decisions KIDS make. I think you can have a parent who values education and pushes their kids while also sending messages and providing temptations that counteract their own goals.

I had a parent one time that was so short tempered and foul mouthed that she was regularly escorted from our building by police. She was relentless about getting the most for her child (who was brilliant btw) from this school. The tragic part though, is that her brilliant daughter was also short tempered and foul mouthed which got her in no end of trouble.

She will miss so many days to suspensions that she will significantly reduce her potential and most probably will be a drop out statistic someday. Is her temperment a product of her mom? You bet.

This is, of course, an extreme example but to varying degrees this goes on a lot. Many many many of my kids are the lone 'adult' at home, raising their little siblings while dad is missing and mom sleeps one off, so these kids are making most of the decisions that affect their lives, including this 'investment' decision.

Anonymous said...

I've read the article. It's interesting, particularly, "Research summarized in Cunha and Heckman (2007) suggests that part of the explanation might be that parental investment during early childhood shapes the potential to acquire additional skills later in life."

This could explain the lack of change in the growth of skills across the spectrum. Who's raising the children? If a college educated couple leaves their toddler with a babysitter who dropped out of high school, does this influence the toddler's development? Does the toddler grow up resenting her parents' lack of time?

Another explanation for the difficulties for low SES families is, how well do they read the system? When a teacher tells them, explicitly or implicitly, that children don't need to master simple arithmetic, because we have calculator now, do the parents believe the teacher? Our school has, at various times, belittled standard arithmetical algorithms, spelling, grammar, the liberal arts, and expository writing. We don't believe them, and push back, with home programs, if necessary. But, if we hadn't experienced success in school ourselves, would we have the courage to go our own way?

Anonymous said...

I've been thinking of a different way to frame the concept of technology diffusion. I'm not happy with 'diffusion' as it seems like kind of a passive process.

Better, I think, is to think of a Petri dish. If you put bacteria into the dish, it spreads most rapidly and in the direction of it's preferred nutrients. If you think of education as the growth medium and new technology ideas as bacteria you can see where I'm going.

The thing about technology evolution is you never know where it's going at first, just like the new bacteria. The one and only thing you can predict about it's growth is there has to be a favorable growth medium for it (education) or it whithers and dies. The dilemma is you don't know which thing to focus on.

This is why a classical liberal educational ethos is crucial. It's the growth medium. We aren't smart enough to predict which of its parts will be essential for the next new 'bacteria'. As we nibble away at that ideal there is the real and dangerous probability that we'll starve the next new thing.

Catherine Johnson said...

High skill grads are coming from high skill families in spite of what you're experiencing.

oh, absolutely!

I didn't mean to imply that I dispute that.

Catherine Johnson said...

I too have seen low SES parents that value education but this is about the values that are subtly contributing to the decisions KIDS make.

What I've seen, here in "high-performing land," is that it's the parents making the decisions, not the kids -- at least in middle school.

C. would be in VERY bad shape if he hadn't had parents to "carry" him through middle school.

"Carry" means overseeing everything he was assigned to do that he couldn't do on his own, which was a huge amount.

For the past 3 years he and a huge number of kids in the school (the large majority I would assume) has consistently been given homework assignments well outside his "ZPD."

We've relayed this fact to the school repeatedly, but the practice continues.

Most parents hire tutors; we did the reteaching ourselves and turned into major PITAs.

As far as I can tell, it's standard practice for public schools to give kids homework they can't do.

If you give a kid with two college-educated parents living in the home homework he can't do, he'll come to school with homework completed and the administration can tell protesting parents, "Everyone knows Westchester parents hire tutors when they don't need to."

If you give a kid without two college-educated parents living in the home homework he can't do, he doesn't do it.

The profound ed-school sponsored commitment to "heterogenous grouping" guarantees that many, many, many children are being "taught" stuff they're not ready to learn or to do.

Oh, wait.

I forgot.

My district has differentiated instruction.

So we don't have that problem.

Catherine Johnson said...

We don't believe them, and push back, with home programs, if necessary. But, if we hadn't experienced success in school ourselves, would we have the courage to go our own way?

I think a non-college educated parent might have more confidence in his or her common sense belief that his kid needs to learn the times tables.

I base this on an interview I once did with a middle-age autistic man raised by working class parents. It was the era of Bruno Bettelheim and the refrigerator mother, and his mom was completely impervious to all of that. Round about the same time I met a college-educated mom who also had an autistic child & who felt some profound guilt for having caused her child's autism that for years she didn't trust herself to drive with the children in the car because she was afraid she'd drive into a concrete wall and kill herself & the children. The college-educated mom was vulnerable to Bettelheim's claptrap because she'd been socialized by her education to respect experts.

However, I also think the number of non-college educated parents with the confidence to launch into remedial math afterschooling is going to be tiny.

The fact is, almost no parents can teach math. Period.

The math teacher I know, who tutors a lot of kids, told me, "I get the call in 5th grade."

That's the point at which my town's very well-educated parents stop being able to handle the nightly math reteaching.

Catherine Johnson said...

This is why a classical liberal educational ethos is crucial. It's the growth medium.

That is the irony of the ed school campaign to replace the liberal arts with 21st century skills.

A liberal arts education gives you the most flexibility in responding to change.

The problem, of course, is that ed schools don't believe in content, period. They believe in "skills." That's the Deanna Kuhn article: don't teach content, teach "inquiry" and "argument."

Well, inquiry and argument won't get you very far when you grew up in an era of color TVs with 3 channels and now you're living with a flat screen TV, a cable box, a DVD player, on-demand movies and 3 remotes.

Just to take one example at random.

Can you use inquiry and static to turn on your TV and watch an actual program instead of static and fuzz?

The answer is no.

Catherine Johnson said...

We went to a little graduation party at some friends house this week.

Every parent in the room was college educated & I think every parent also had an advanced degree (2 lawyers, 1 physician, 2 Ph.Ds - not sure about the other parent). There were at least 4 Ivy League degrees in the group.

Altogether, that group of parent has been employing -- steadily employing -- 4 tutors.

Ed and I were the only couple present who hadn't hired a tutor, and that's due only to sheer cussedness on my part.

Probably 2 of the kids in that group would have done well in middle school without a tutor, but they have a special circumstance in the shape of siblings extremely close in age. They have built-in "peer tutoring." (There mother says so, and she's right - I've seen it in action.)

Peer tutoring WORKS.

If C. had a daily study partner he'd need far less "help with homework."