Volume 1, No. 2, Spring 1997

The Effects of Government Policy on Human Capital Investment and Wage Inequality
James J. Heckman, Lance Lochner, Jeffrey Smith, Christopher Taber

The decline in relative earnings for unskilled workers over the last 25 years has renewed interest in policies that encourage human development among persons with low levels of ability and education. Four types of government policies affecting skill formation have been proposed, including: (1) subsidized training programs, (2) wage subsidies, (3) school-based initiatives, and (4) tax policy. We examine the impacts that each of these policies has on the human capital investment of low- and high-skill workers and how those policies might be changed in order to promote skill formation and reduce income inequality.

James J. Heckman is the Henry Schultz Distinguished Professor of Economics, Director of the Center for Social Program Evaluation at the University of Chicago and Senior Research Fellow at the American Bar Foundation. Lance Lochner is a Research Associate at the Center for Social Program Evaluation, University of Chicago. Jeffrey Smith is Assistant Professor of Economics at the University of Western Ontario. Christopher Taber is Assistant Professor of Economics at Northwestern University.

Knowledge and Wealth: The Role of Innovation and Human Capital in Economic Growth
Robert J. Shapiro

The current political debate over economic policy is largely bound by traditional terms of capital versus labor: One side claims that faster growth depends on smaller government and lower taxes on business investment, while the other insists that growth policy must include income supports and broader public provision for education and training. This article presents an alternative theory and strategy for economic growth, organized around the value of knowledge itself. It is well-established in economics that technological progress, broadly conceived to include all forms of economic innovation, is the most powerful factor affecting the pace of economic growth. The essential reason is that in contrast to capital investments or labor effort, ideas are not subject to the law of diminishing returns. Classical economics, depending on a narrow theory of markets, views innovation as exogenous to the economic process, and therefore holds that government cannot positively affect either its pace or extent. Dr. Shapiro presents an alternative model of market behavior based on "New Growth Theory", which understands knowledge and innovation as endogenous to the economic process and therefore responsive to economic incentives. The article also sketches some basic elements of a new growth program based on endogenous growth theory.

Robert J. Shapiro is the Vice President of the Progressive Policy Institute and the Director of Economic Studies of the Progressive Foundation. He has been an economic advisor to President Clinton and senior members of the Administration. He holds an A.B. from the University of Chicago, an M.Sc. from the London School of Economics and an M.A. and Ph.D. from Harvard University.

Building Strong Foundation in Early Childhood: A Developmental Approach to Human Capital
Kathryn Tout, Arturo Sesma, Jr

The years from zero to three are critical in children's lives. During these early years, the roots of cognitive and emotional competence begin to grow out of the child's interactive experiences with the physical and social environment. In the last decade, a growing body of research in neuroscience and molecular biology has underscored the importance of this period in laying the foundation for healthy child development. In this paper, we integrate theory and research from developmental psychology with recent advancements in knowledge about early brain development to highlight the features of a developmental perspective. We emphasize the role a developmental perspective can play in the creation, implementation and evaluation of human capital policies and we outline the importance of child-centered policies in providing developmental support for children and their families.

Kathryn Tout and Arturo Sesma, Jr. Are doctoral candidates in developmental psychology at the Institute of Child Development, University of Minnesota. Tout is also an Irving B. Harris Child Policy Fellow at the Harris School.

Sorting Effects of Family School Choice: When Parents Choose, Do Tax-Payers lose?
Steven Glazerman

Many education reforms promise to give parents more power over the assignment of their children to schools. This can have important consequences for the sorting of students, the nature and quality of educational outcomes, and the overall satisfaction of families. This paper explains how parents' use of that power can both help and hurt the cause of public education. The paper considers four broad classes of policies -- mandatory assignment, controlled school choice, vouchers, and charter schools -- that resolve in unique ways the tension that arises between what parents want and what communities that fund public education want. I argue that the effect of these policies depends largely on the empirical question of what determines families' school preferences. The answer must come not from questionnaires but from observing the actual choices parents make when forced to decide what kind of school and what kind of classmates they want for their children.

Steven Glazerman is a Ph.D. Candidate in the Harris School. Glazerman studies education policy and the evaluation of social programs. He is writing a dissertation on the determinants of parental choice in elementary schools.

School Choice, Education Policy and Legal Theory: Uncomfortable Yet Inevitable Intersections
Michael Heise

Public policies' utility depends partly on whether they comport with constitutional and legal doctrines. Constitutional and legal uncertainty in crucial areas, however, makes policy development more difficult. The emergence of school choice as an education policy option has sparked scholarly interest in related research questions that will not likely subside anytime soon and illustrates this difficulty. Although an array of economic, political, and education issues implicated by school choice policies are beginning to receive much-needed attention, research on important legal and constitutional issues remains comparatively underdeveloped. This underdevelopment is particularly surprising given legal doctrine's considerable influence on the design and implementation of school choice programs. This article reviews likely intersections between school choice policies and such issues as the United States Constitution's religion clauses, public regulation of private and religious schools, and school desegregation. By identifying important legal issues implicated by school choice policies, this article seeks to shed light on the complex and nuanced relation between courts and education policy in general.

Michael Heise is Assistant Professor of Law and Director of the Program in Law and Education at Indiana University School of Law-Indianapolis. Prior to joining the law faculty Professor Heise served in the Bush Administration as deputy chief of staff and senior counsel to U.S. Education Secretary Lamar Alexander.

Small Schools and Human Capital
Alexander Polikoff with Stacey Marcus

There is widespread concern that too many American children fail to emerge from our public schools with the education and skills we would wish them to have acquired. Responding to the 1983 A Nation at Risk report, "first wave" reform efforts -- stricter graduation requirements, higher teacher salaries, and a miscellany of other steps -- are generally viewed as having failed to raise student achievement to the desired level. A "second wave" strategy, called "restructuring", seeks in various ways to foster "on-site" control of schools. One of these, personalized learning environments through "small schools", has gained strong support in the literature. Yet the small schools movement faces obstacles, including skepticism on the grounds of curricular adequacy and costs, uncertainty as to exactly why small schools appear to perform better than large ones, and the considerable difficulty of "doing" small schools. Notwithstanding, no other approach to public education reform appears to hold the promise of small schools.

Alexander Polikoff has been Executive Director of Business and Professional People for the Public Interest (BPI), since 1970. Before that he was a member of the Chicago Law firm of Schiff Hardin & Waite. He received his B.A., M.A. and J.D. from the University of Chicago. Stacey Marcus, currently on staff and BPI, is a recent graduate of the University of Chicago where she majored in Political Science with a concentration in education policy.

Homo Commoditus: The Concept of Human Capital as a Strategy for Cultural Regeneration
Dwight D. Allman

This essay examines and evaluates the idea of human capital as a means of conceptualizing and politically managing the problem of education for contemporary liberal democracy. The discussion prompted by the idea of human capital invites us to believe that a program of education conceived in essentially vocational terms, that is, in terms of transmitting knowledge and engendering skills as demanded by the equation of high productivity, will best ensure our social well-being. Within this framework, public discussion over the ends and aims of education thus tends to be cast in terms of what knowledge and skills will give rational economic-actors the "capital" with which they are most likely to better their lot in life, pushing aside the issues of citizenship that traditionally supplied a vital organizing rationale for public education. I argue that high productivity levels do not ensure the political well-being of liberal democracy. We must therefore beware lest enthusiasm for a human capital conception of education lead us to neglect or to overlook the political priorities of education. In addition, I contend that high levels of scholastic achievement, on the level both of the individual and of American society as a whole, likely depend on a commitment to the project of education that transcends the narrowly utilitarian logic of human capital and that represents an even more significant, if intangible, "asset" than the competencies judged most valuable by that logic.

Dwight D. Allman is Assistant Professor of Political Science at Baylor University. He received his Ph.D. in Political Science from the University of Chicago.