The persistent high wage premium associated with college education, despite increasing participation rates, continues to generate a great deal of academic and policy interest. While it is widely agreed that the financial benefits associated with college completion outweigh the costs, modeling and empirically estimating the returns are complicated. A simple theoretical framework on educational investment illustrates the decision-making processes and key factors, such as expected returns, that guide the choice of an individual to engage in higher education and to achieve an optimal level of educational investment. Broadening the investment model, however, is instrumental to account for potential heterogeneous returns to higher education—the variation in returns by institution, field of study, and students’ background characteristics, among others—and to recognize the wider societal benefits of higher education, beyond private returns.
The challenges involved in estimating the returns to higher education and the heterogeneity in returns are central in the discussion. Interpreting a naive correlation between education and wages is complicated by the nonrandom selection of individuals into higher education, such that individuals who are most likely to benefit from higher education are also those most likely to attend. Advancements in data collection, the ability to track individuals from compulsory education to the labor market, and improvements in econometric methodologies have enabled researchers to causally estimate the impact of higher education on earnings and allow for an improved insight into the disparities in returns to higher education. Recognizing the links between students’ characteristics (or backgrounds) and associated constraints helps to understand differences in higher education choices. Similarly, identifying differences in labor market returns associated with attending certain colleges or pursuing particular academic disciplines is as important in shedding light on the complex nature of human capital disparities and the signaling effect of higher education.
As the costs of higher education provision constitute an increasingly large share of government spending all over the world, the high returns to college raise questions associated with who should pay for attending college and the role of the state. Internalizing the social returns to education and their broader implications on the growth and the persistence of inequality complicates this discussion. Higher education funding is one potential policy instrument to influence college attendance and returns. It is not, however, the only one. Better information on returns to education or access to policies that target members of certain social groups might be other potential tools to overcome constraints.
Article
Labor Market Returns to Higher Education
Ghazala Azmat and Jack Britton
Article
The Evolution of Mental Health Policy and Economics
Sherry Glied and Richard Frank
Mental health economics addresses problems that are common to all of health economics, but that occur with greater severity in this context. Several characteristics of mental health conditions—age of onset, chronicity, observability, and external effects—make them particularly economically challenging, and a range of policies have evolved to address these problems. The need for insurance—and for social insurance—to address mental health problems has grown. There is an expanding number of effective treatments available for mental health conditions, and these treatments can be relatively costly. The particular characteristics of mental health conditions exacerbate the usual problems of moral hazard, adverse selection, and agency. There is increased recognition, in both the policy and economics literatures, of the array of services and supports required to enable people with severe mental illnesses to function in society’s mainstream. The need for such non-medical services, generates economic problems of cross-system coordination and opportunism. Moreover, the impairments imposed by mental disorders have become more disruptive to the labor market because the nature of work is changing in a manner that creates special disadvantages to people with these conditions. New directions for mental health economics would address these effects.
Article
The Impact of Brexit
Jonathan Portes
Brexit resulted in major changes to the United Kingdom’s economic relationship with the European Union. The U.K.–E.U. Trade and Cooperation Agreement provides for tariff-free trade but has also resulted in the introduction of customs controls and various non-tariff barriers. In addition, the ending of free movement of workers between the United Kingdom and the EU was accompanied by major changes to the UK’s system for work-related migration.
These changes have resulted in a reduction in UK trade compared to other advanced economies, with goods exports most adversely affected. However, the proportion of overall UK trade that is with the EU does not yet appear to have fallen. Investment has also suffered. However, a fall in migration from EU countries has been at least offset by very large increases in migration from the rest of the world, particularly in the health sector.
Overall, UK GDP growth has underperformed synthetic counterfactuals by about 5% since the Brexit referendum, but a substantial proportion of this is likely to reflect factors not directly related to Brexit: comparisons with other large European economies are much less negative. Nevertheless, Brexit has had a negative impact on growth. Looking forward, this impact is likely to grow, although it could in part be offset by improvements to the UK’s regulatory framework, or mitigated by changes to the Trade and Cooperation Agreement.
