Market Power

Musings by an academic economist on the power of markets and the power over markets.

Thursday, January 20, 2005

More on the Summers Disturbance

Here is another article about the controversy around Lawrence Summers' presentation regarding the underrepresentation of women in math and science that I commented on earlier. The controversy surrounds Summers' discussion of a research hypothesis, currently being explored, that there may be some innate difference between men and women that are, in part, an explanation.

For those not accustomed to the jargon of economics, Gary Becker's Human Capital Theory treats choices in skill acquisition (such as education or on-the-job training) much like a factory treats the acquisition of a piece of machiney. The machinery generates a large cost now but generates benefits (as well as other costs) into the future. The purchase decision is thus an investment decision - the factory owners must weigh the long-term benefits against the costs. Human capital refers to the skills and knowledge possessed by a person, skills and knowledge that come at a large initial sacrifice but that can generate benefits over time.

One of the difficult thing to do in examining questions based on Human Capital Theory, such as the research referred to by Professor Summers, is controlling for innate ability. For example, it's well known that on average, people with college degrees have higher lifetime earnings than those without college degrees. How much of this is due to the hard work of faculty and staff?

Well, we also know that people with more innate ability are more likely to go to and succeed in college. How, then, can we attempt to nail down the effect that education per-se has on a person's earnings independently of a person's innate ability? Since the ability is "innate", it is possessed at birth. We thus need to gather information on very young people. There are various ways one could account for this. One way is to study identical twins who take different education paths. Another way is to use parental information as a control. Another way is to examine various sorts of test scores given to kids when they are very young to measure their ability and then use this information as a control in a future dataset containing the same subjects at an older age.

But this is easier said than done, and it's one of the reasons that controversies continue to crop up when researchers, to the best of their abilities, undertake studies where they need to control for innate ability.

Thanks to ktoe grrrl for the link to the BBC article.