Illuminating Economics: A Conversation with Steven Levitt

March 7, 2012

5:15pm 7:15pm

Charles M. Harper Center

It’s a well-known fact that economic returns to education are huge, with every year of schooling adding eight percent to an individual’s wages over their lifetime. Today, the wage gap between college educated workers and those without a degree has grown even larger, yet in the U.S., educational attainment remains surprisingly low. The high school graduation rate has been stuck at about 70 percent for decades, and many who do graduate don’t make it to college.

At a talk on March 7, Steven Levitt applied Chicago-style economic analysis to try to explain that puzzle. Levitt, the William B. Ogden Distinguished Service Professor in Economics and director of the Chicago Price Theory Initiative, studies a wide range of topics including the economic aspects of crime, corruption, sports, and education. The coauthor of Freakonomics, Levitt is known for finding real-world data and natural experiments to explain and understand the real world, and he did the same in this talk.

He speculated that the root of the problem is that too many students leave secondary school too poorly prepared to succeed at college. “So why is there a huge portion of people who are so disqualified by our educational system, and what can you do about this? You can think like an economist,” said Levitt, who is also codirector of the Andrew and Betsy Rosenfield Program in Economics, Public Policy and Law. “If you go back to Milton Friedman, you can bring in his idea of school choice.”

The Power of Choice?

Since Chicago Public Schools offer almost complete school choice, it offers a perfect natural or accidental experiment. “You can look at neighborhoods with lots of schools and therefore more school choice and ask, do the kids live in neighborhoods with lot of high schools around them tend to do better (in school) than those who don’t? By and large, the answer is no,” Levitt said.

“There’s one exception. If you had a career academy nearby, you did better. If kids were not going to succeed on a college prep course track, then having access to a technical school where they could gain skills helped. They stayed in school, graduated, and did better after graduation.”

Does class size matter? Levitt also has studied school lotteries designed to address overcrowding and to allow student to switch to other schools. He found that students who enrolled in lotteries did better academically than those who opted to stay in their local schools. However, on deeper analysis, it turned out that students who actually won the lotteries did worse in schools than students who entered the lottery and lost.

“It turned out that academically you suffered from winning the lottery. You were more likely to drop out and have lower grades.”

One possible explanation for this is transportation costs: students may spend so much time and energy taking buses and trains to school that it affects their school performance. Levitt noted, “That may be part of it, but my hunch is that the answer is that it’s better to be a big fish in a small pond. Kids did better when they were stars in an average school than in a school full of high achievers.’

Incentives to Learn

Since research shows school choice and competition hasn’t made significant impact on student achievement, the next place economists look is at incentives. Levitt and his colleagues have conducted experiments in different school settings offering rewards for student achievement. In the Chicago Heights elementary school, they have tested programs that tried to incentivize students, teachers, and parents.

They found that they could increase students’ test scores by the equivalent of five months of learning just by putting $20 on the desk and telling students the cash was theirs if they scored better than on the last test.

They tried offering gifts instead of cash, and found that for children under age 12, trinkets worked better than money. “They didn’t have a good value mapping between a whoopee cushion and $20,” Levitt noted. They also found that the same $20 paid a month later would not motivate students to work hard on a test today.

Both elementary students and undergraduates greatly preferred a small reward—even a candy bar—today than something much more valuable a month or a year or 10 years from now.

“Basically what we learned is that cleverly done, you can entice a lot of effort out of kids if you time the reward and use the right currency. We’ve taken a crack at this, but bottom line, boy, it is so hard to incentivize in the education environment. I think it comes back to this future discounting. “

Other school reform efforts like the Harlem Children’s Zone or Knowledge is Power Program seem to succeed by recruiting highly effective and motivated teachers or skimming the cream of good students from other schools, Levitt noted.

A Textbook Solution

So if all these things don’t really work, what does keep young students motivated to stay in school and learn? He found a possible answer in his 11-year-old daughter, when he realized she was staying up very late to finish her Chinese homework. “Somehow we’ve brainwashed her into believing her homework is the most important thing. It’s not logical. I’m not sure where she got it.”

“The more I thought about it, I saw that’s what we’ve got to do. You’ve got to somehow indoctrinate children that school is the most important thing. Too much of the blame is put on schools, too much credit goes to schools when things happen to work. Maybe what we need is high quality parents who invest in the idea of education."

“It’s probably un-American and unpopular to call for better parents,” he acknowledged. "But if you think like an economist, put aside politics, a really good place to start looking is how can you start affecting what goes on inside the household."

March 7, 2012 - 5:15pm 7:15pm