Economics of Education.

• Author: Hoxby, Caroline M.

Over the past few years, the number of Working Papers issued by NBER's Economics of Education Program has grown rapidly, with about five new papers added each month. To cope with the large number of excellent submissions, a spring program meeting has been added to each year's events, which already included a fall meeting, a Summer Institute program, and programs dedicated to special issues. This is all to say that education continues to be an extremely productive and exciting area of research in economics. I attribute this to three phenomena. First, policymakers are actively experimenting with education-related policies, and this creates a great deal of useful variation for researchers to analyze. Indeed, there is a virtuous circle between economic analysis and policy innovation because economics is the inspiration for, or intertwined with, many policies: school choice, accountability, savings and aid plans for college, incentive pay for teachers, reducing the barriers of entry into teaching, and so on. Second, the education program draws upon the talents of economists who come from a variety of fields, and this makes for an exciting dynamic owing to the opportunities for arbitrage of ideas and methods across fields. Third, and by no means least important, is the continued, rapid rise in the quantity and quality of data available to researchers. Researchers may differ on the substantive effects of state accountability laws and the federal No Child Left Behind Act, but no researcher would deny that these laws have created a deluge of data, much of which is longitudinal. Because of coincidence, imitation, and similar causes, researchers' access to rich data on colleges and foreign schools has also risen dramatically. A few states have even created "K-20" databases that allow us to track a student's progress from his pre-kindergarten or kindergarten entry to his final college course. The promise of such data is immense. Although program members continue to focus most of their research on the United States, they are increasingly taking advantage of foreign countries' data and willingness to conduct policy experiments. As a result, many of the methodological advances that are launched on U.S. data spread quickly to research around the world.

All program reviews are necessarily selective and this one is no exception. Three major themes in recent work deserve special mention: the effects of teachers, peer effects, and the complexity of college students' choices. Toward the end of this review, I describe other themes that are currently receiving less attention but are likely to emerge as absorbing topics soon.

Teachers

It is a commonplace that teachers matter, perhaps because nearly everyone can remember a teacher or teachers who strongly influenced his life. Thus, economists' inability to find consistent empirical evidence to support the idea that teachers matter has been a substantial puzzle. For years, most studies of teachers' effects depended on regressing students' achievement on the characteristics of their teachers: experience, highest degree, certification, and so on. Such studies often suffered from a selection problem--essentially, more qualified teachers had a tendency to gravitate to schools that served students from more privileged backgrounds. (Below, I shall have more to say on this tendency.) The selection problem caused researchers to overestimate the effect of teachers' credentials on achievement, yet still there was no consensus among studies that teachers' characteristics affected students.

This puzzle has been largely resolved in the past couple of years, owing to studies that directly estimate teachers' effects on achievement using longitudinal data. With a generous amount of data, the method is fairly straightforward: students' achievement is divided, statistically, into student fixed effects, grade fixed effects, year fixed effects, and teacher fixed effects. Jonah E. Rockoff has done seminal work on this topic. (1) While statistical decisions do arise, most authors uncover fairly large differences in the effects of teachers who teach the same grade in the same school, use the same materials, and draw students fairly randomly from the same population. For instance, estimates often suggest that the best teacher may raise achievement by as much as half a standard deviation more per year than the worst teacher who operates in identical circumstances. In other words, we are not wrong to recall that "teacher X" raised our achievement.

Once researchers have calculated teachers' empirical effects, these become a powerful dependent variable that can be used to explore the effects of policy on the teaching workforce. One of the first things researchers did with the computed teachers' effects was investigate whether they were closely related to the teacher credentials upon which achievement was traditionally regressed. The answer was generally no: credentials do not explain teacher effects for the most part. (The exception is that very inexperienced teachers have worse effects, but even the effects of increased experience plateau after four to five years.) This brings us to the most recent work, which examines policy changes designed to affect teachers. Donald Boyd, Pamela Grossman, Hamilton Lankford, Susanna Loeb, and James Wyckoff (11844) and Thomas J. Kane, Rockoff, and Douglas O. Staiger (12155) investigate New York City's recent decision to allow people from a wider variety of backgrounds to teach: not just people who attain certification through regular channels, but also people with alternative forms of certification or temporary teaching licenses ("Teaching Fellows," Teach for America, international exchange programs, and so on). Both studies conclude that differences in certification explain only a small fraction (if any) of the variation in achievement: differences among teachers with the same certification dwarf the differences associated with certification. The rather striking implication of the evidence is that it may make sense for schools to focus their energy on ex post selection--that is, retaining teachers who empirically demonstrate good effects in their first few years, and not retaining others. Kane, Rockoff, and Staiger conclude...