Industrial Revolution in Britain: it was thanks to human capital

Despite the fact that it happened about 200 years ago, we are still puzzling why the Industrial Revolution happened, why it started in Britain and it happened at that moment. A sample of previous work relevant to this has been discussed on this blog: 1, 2, 3, 4. While all this is old history, it is still kind of relevant, as we are also trying to understand how to get the least developed economies to get through a similar revolution. The circumstances are different, but lessons from two centuries ago may be useful.

Morgan Kelly, Cormac Ó Gráda and Joel Mokyr add another piece to the puzzle. British men were significantly better fed and taller than their continental counterparts. They likely had better cognitive skills, too, as we know today that they correlate positively with physical health. And, the distribution of these positive traits was such that a significant share of the population had the right characteristics to participate in the Industrial Revolution. That was not the case elsewhere. Thus, good human capital and a good distribution of it are necessary for the Industrial Revolution, but likely not sufficient.

There is demand for fresh fruit in Scotland!

When I am thinking about Scotland and the average diet of its residents, I am not thinking about fresh fruit. Indeed, obesity rates there are about the highest anywhere in the world, thanks to a combination of greasy food, high alcohol consumption and general lack of exercise. Fresh fruit does not seem to be high in demand, yet there is a paper that studies the price elasticity of different types of fruit in Scotland.

That paper is by Cesar Revoredo-Giha and Wojciech Florkowski and unfortunately it does not mention any numbers about the level of demand, in particular compared to other regions. The paper, like many papers in agricultural economics has a very narrow focus and it is not clear at all why it would be of interest to anybody outside of Scotland (or even in Scotland, visibly). Is there any lesson to be learned for the rest of us? Anything that could generalize? Some policy implication to get people to eat more healthily? The paper was prepared for a conference in Poland. Why would the paper be of interest there?

Volunteers are happy

Why do people volunteer? Obviously it must be because they find some satisfaction in it. But they may be forced to do it (say, by peer pressure or because it improves one's CV), yet one can still argue they appreciate the volunteering because they find a benefit in it: without it, there would be adverse consequences. It thus seems unavoidable to find a positive relation between volunteering and happiness, unless one is able to tease out the circumstances of volunteering. Add to this the endogeneity issue that people may be volunteering because they want to spread their happiness, or because they enjoy good circumstances that allow them to work without pay.

Martin Binder and Andreas Freytag use the British Household Panel Survey to study whether volunteering makes happy. I am not sure their reduced-form estimates are able to capture the subtleties I mentioned in my first paragraph with propensity score matching. I find more promising their inclusion of personality traits to take care of selection bias in volunteering, although personality cannot completely be ruled as exogenous. Also, their quantiles regressions can potentially highlight some heterogeneity that can be useful for our understanding of the relationship. In the end, they find that volunteering makes people happy, no surprise here, and more so the longer they volunteer. The quantile regression, however, reveals that the happiest individuals do not derive happiness from volunteering, presumably they are happy for other reasons. The least happy ones do enjoy volunteering much more. I wonder whether this comes from some decreasing marginal utility of volunteering, and whether this ties in with the fact that the poor are more generous, as discussed before.

Why encourage more students to choose scientific careers?

Everyone is calling for more students to go for diplomas in the sciences, with the idea that why need research and development to promote growth. Everyone is also lamenting that today's students are not prepared for such careers because they are lacking in mathematics skills. So it becomes a real struggle to get students interested in those fields, especially women. It is one thing to get students to take one such studies, it is a different struggle to keep them there. For one, it is a tough field to study and many abandon and go for easier topics. Those who end up graduating in sciences must be seriously dedicated to become scientists.

Not quite. Surveying British graduates, Arnaud Chevalier finds that half works outside of scientific fields within three years. Worse, having a science degree bring no wage advantage outside of sciences. In other words, they endured and persevered through science studies for no visible advantage over those who when through business, political sciences or psychology. This raises the question why everyone is pushing so hard to channel students to the science fields. There does not seem to be a market for them after graduation and/or many to do want to work in the scientific field anyway, as satisfaction studies seem to be revealing, including this one.

House prices and consumption: how model specification matters

What is the impact of a decrease of house prices on consumption? If you go by the wealth hypothesis, one should see that home owners would reduce their consumption significantly because their wealth has suffered, while young renters are barely affected. According to the common factor hypothesis, both agent classes should respond in the same way, because they respond to common factors, for example future income prospects. It should be easy to test one hypothesis against the other and settle this. It turns out that using the exact same dataset, John Campbell and João Cocco could not reject the first, while Orazio Attanasio, Laura Blow, Robert Hamilton and Andrew Leicester could not reject the second. Well, that is embarrassing.

Annalisa Cristini and Almudena Sevilla Sanz replicate these results and show that because the two models are not nested, they cannot test against each other. Worse, it all boils down to the specification: estimate an Euler equation (which uses consumption growth) and the wealth hypothesis wins; estimate a consumption function, with consumption in levels, and the common factors hypothesis wins. So I am afraid it is not sufficient to estimate a single equation, one needs to estimate the whole structural model jointly.

The impact of poor scheduling of international football tournaments on English GCSE results

For every big sports event, there are two types of economic studies that make the news: the ones about the economic impact, which essentially add up all the expenses somewhat related to the event (sometimes applying a multiplier), never mind the fact that all this could have been spent on something else, and the studies about productivity losses because people are sleepy or distracted at work. I remember from school days that these events would also have a tendency to fall on exam period, which was a serious drag on exam preparation. How much? Someone finally figured it out.

Robert Metcalfe, Simon Burgess and Steven Proud exploit the fact that every two years a major international football tournament overlaps with important exams at the end of compulsory schooling in England. And their results are not pretty: male students as well as disadvantaged students suffer disproportionately from the competition for their attention. From them, exam scores are reduced by 0.2 standard deviations, which substantial, and as the authors note as large as some policy interventions. Just rescheduling those exams could be more effective than pouring money into some school initiatives.

The child quality/quantity trade-off in the Industrial Revolution

Non-economists cringe when they hear us talking about investment in children and the quantity/quality trade-off in this regard. Yet, this is a very real aspect of child rearing pointed out by Gary Becker that is at the core of many models, and has been found wild in nature. This trade-off is though to be an integral part of the demographic transition, where fertility suddenly drops massively in the course of development.

Marc Klemp and Jacob Weisdorf look at data from Anglican parish registers from the 18th century that contain all sort of demographic data to look at the child quality/quantity trade-off during the Industrial Revolution. Theory tells us that if the returns to education and/or the cost of time (wages) get larger, parents switch from having many children with no education to few of them with better education. Klemp and Weisdorf's data indicates clearly that this trade-off is present: each additional sibling reduces by 8% the probability of a child eventually becoming literate. That is a strong effect, in particular considering the larger number of children at the time, and its rather large standard deviation during this time of transition.

Energy spending and household poverty

There is broad agreement that energy, especially polluting energy, is too cheap, calling for higher energy taxes. The problem is that such taxes are believed to be highly regressive, as poor households spend a larger share of their income on energy for transportation, heating and cooling. Of course, this could be alleviated by an appropriate redistribution of the proceeds, but to do this properly one first needs to understand well the energy spending of poor households.

Tooraj Jamasb and Helena Meier do this for the United Kingdom. There, households that spend more than 10% of their income on energy are considered "fuel poor" and deemed as having difficulties heating their home. I have always been suspicious of such definitions, as one may choose to spend more to heat at higher temperatures, for example, without being considered at risk. But this definition may indeed capture a good portion of the households of interest. While Jamasb and Meier find the usual conclusions (fuel poor households are poor, have children or are retired, spend more time at home), they also put high hope in smart meters. By showing current energy consumption, they hope that these meters will trigger behavioral changes and in particular help so far ill-informed households manage better the available energy and look for energy efficiency. As so often, good information goes a long way in managing scarcity.

The smart children of vengeance

As someone who has been raised in a non-violent environment, I am often surprised how people in some circles easily resort to vengeance and violence while a conciliatory attitude could have resolved "issues" quickly and efficiently. There is certainly a good deal of learned behavior that determines whether you are of a conflicting or conciliatory type, and this learning comes from example, in the family, among peers and in society. Society is important (say, compare Scandinavia to the Balkans) but there are also striking differences within societies. That is where parents may come in.

Ruby Henry studies how the use of retaliation is transmitted to children, first using a model of education effort by parents, and then using UK National Childhood Development Survey. The theoretical prediction is confirmed that high-cognitive parents are better able to transmit their values and override the peer culture, as long as the parents are retaliators. Indeed, if a child is told to retaliate and meet a forgiver, he wins and his values are reinforced. If he is a forgiver and meets a retaliator, he looses and is upset by the teachings of his parents. It the long run, this means that humankind will settle on a retaliating culture. But I do not think this is what we observe. In fact, there are less wars, people abide more to contracts and, I think, respect more the rule of law over time. Correct me if I am wrong.

Breastfeeding and cognitive skills

Breastfeeding is now almost universally promoted as the healthiest way to feed a baby. And indeed, while breastfed babies are a little smaller and than bottle-fed ones and gain a little less weight, they are healthier, it is thought mainly because the mother milk transmits antibodies and relevant nutrients. But not every mother breast feeds, maybe because not every mother realizes all the benefits, or because some of the costs are high (time management for working mothers or aesthetic issues). Or there are some other benefits that are not well known.

Maria Iacovou and Almudena Sevilla-Sanz report that breastfeeding has significant positive impacts on cognitive skills (reading, writing and mathematics). While this correlation is well known, it may be spurious because mothers who breastfeed are more likely to be well educated (Irish example), and their children are also more likely to be well educated as well. The obvious way to overcome this statistical issue, a randomized trial, is not feasible on ethical grounds. What Iacovou and Sevilla-Sanz do is use propensity score matching, which essentially matches babies that have the same characteristics but breastfeeding and then compare their cognitive skills. What is particularly impressive in this study is that the retained characteristics are very broad beyond baby demographics and health, including parent characteristics such as education, job, income, and even pre-birth attitude towards breastfeeding or home and neighborhood. And even after controlling for all these variables, the impact of breastfeeding is still significant on babies from Bristol (England), and it may even grow with age.

Immigrants and crime

Immigrants are often held responsible for increased crime rates, or crime in general. As these accusations occur in every country one has to wonder whether people immigrate because they are criminal, yet immigration authorities typically vet criminal records. So are immigrants really more criminally inclined than native populations? A recent paper should help shed some light.

Brian Bell, Stephen Machin and Francesco Fasani look at two recent immigration waves to the United Kingdom and find no difference between natives and immigrants. Specifically, they look at the surge of asylum seekers in the 1990s and the large influx of Eastern Europeans in 2004. They key is that immigrants have different demographic and labor market characteristics than natives. Once you control for this, there is no discernible difference. This means also that providing better work perspectives to immigrants reduces both their crime and victimization rates, as it is the case for locals. In particular, forbidding asylum seekers to hold a job seems counterproductive.

Why do daughters have a more positive impact on parents than sons?

Ads for educational institutions or for life insurance, if they feature a child, almost always show a girl. Is it that girls would lead you to take wiser decisions regarding the future? It turns out that having a daughter does indeed make you less risk taking, for example in terms of smoking, drinking, and drug-taking.

Nattavudh Powdthavee, Stephen Wu and Andrew Oswald use British and American data to come to this conclusion. It is well known that females are more risk averse, and risky behavior is at least partly inherited from the parents or taught by them. This study shows that it also goes the other way: the gender of the child influences risky behavior by the parents. Why would this happen? The authors conjecture that boys, especially at a very young age, are more stressful than girls. British data does indeed show that parents of boys are more stressed. Thus they resort to "self-medication" with alcohol, smoking and drugs.

Prices are not rigid in the UK, too

In macroeconomics, there is a continuing debate on the rigidity of prices. If they are rigid, monetary policy matters, if not one of the key assumptions of a real business cycle model is met. It is obvious that there is some rigidity, but the qeustion is whether it matters at the macroeconomic level. I have reported previously on mounting evidence that prices are much more flexible than previously thought (1, 2, 3, 4)

Colin Ellis adds to this literature with a study of supermarket prices in the United Kingdom. And, surprise, they are just as flexible as recent studies have shown for the United States. It is time for everyone to realize that menu costs are a thing of the past. With current information technology, pricing is much more flexible than the production schedule (which gained tremendously in flexibility as well), and those New Keynesian models can safely be shelved now. They may be useful for historical studies, but I am not even sure of that.

Measuring the peace dividend

How costly can a conflict be? While one can measure the expenses poured into a conflict and the physical destruction that ensued, there are important indirect costs that are much harder to get to. Think about the fear, the uncertainty, and the costs of migration. Taking the example of Northern Ireland, Timothy Besley and Hannes Mueller measure violency by conflict related death in eleven regions and look at their impact on house prices, which are supposed to capitalize all costs, and in particular incorporate both immediate suffering and risk as well as the likelihood of future violence. Indeed, a casualty is often a signal about future violence to come, and thus house prices capture also the learning process about conflict violence.

Besley and Mueller model this with a Hamilton regime switching process. Whenever an event occurs, it changes the likelihood that a region is in a violent regime. And this likelihood impacts hose prices. They find that the peace dividend corresponds to about 4-12% in Belfast and 0.8-2.5% over all regions. They also find a migration effect: when violence increases in Belfast, surrounding areas gain, and this effect is even stronger than the learning effect about the region's own violence process. Thus, it looks like every region reacts differently.

Are these effects big? I would say so given that the violence has directly impacted a very small fraction of the population. In fact, the cost of conflict can be even much larger. Indeed, the study only looked at differences across regions in Northern Ireland. There can be substantial costs for the region as a whole, costs that are washed out by trends and fixed effects. For example, the recent housing price boom in the area may have reflected the new peace (along with reduced conflict related expenses by authorities).

Sexism and university administrators

If you are currently in one of the few university departments that are hiring, you are probably getting frustrated by all the hoops you need to jump through to prove that you are not discriminating against various populations. These exercises imposed by the university administrations are sometimes silly, like asking you to figure out whether job candidates have certain characteristics, while you are supposed to take decisions while being blind to these characteristics.

Now, it is then a good question how the practices of the administrators are. Information on hiring practices of administrators is hard to come by, but it is easier to figure out how much they are paid. This is what Alison Booth and Jeff Frank set out to do with British university administrators, looking and gender differentials as well as the influence of sexual orientation or marital status. It turns out academics exhibit no bias in wages, but male administrators are significantly more paid than females. Hmmm. Do as I say (not as I do).

Breaking the monopoly on state sanctioned diplomas: Enter McEducation

The United Kingdom has often been at the forefront of privatization, and it has taken another step in that direction. Private businesses can now deliver their own diplomas in lieu of end of studies diplomas typically delivered by state sanctioned schools (A-Level). Of course, such businesses need to be accredited as well, and the first batch includes a low cost airline (FlyBe), a railway company (Network Rail) and McDonald's. Yes, McDonald's.

The experience you accumulate from flipping burgers to managing a shift can now count towards a diploma that is supposed to open the doors to a university education. That in itself is not new, as some universities are willing to accept an appropriate work experience as a replacement for a high school degree (in US terms). The difference here is that degrees are supposed to be transferable. An accredited A-Level degree is an A-Level degree, whether it is from Eton or McDonald's. Universities are not so sure, however, claiming that "McQualifications" have a much too narrow focus and are academically not sufficiently rigorous.

This brings us closer to the US situations, where universities are essentially free to choose whatever they want for admission criteria, and there is plenty of evidence that a (reputable and good) high school diploma is only a minor part for admission to, say, Ivy League schools. Isn't public service, leadership and sports achievement that potential students are suppose to exhibit essentially the same as the hands-on experience that McDonald's and others would document?

I suppose the point of the experience in the United Kingdom is the break the monopoly educational institutions have in delivering diplomas. Documenting other aspects of human capital that pure academic work is certainly of interest, much like apprenticeship has done for centuries in Germanic countries. But can recommendation letters from employers not do the same? And how can one distinguish the quality of diplomas across the soon numerous providers? In no time, private entrepreneurship will yield a firm that will provide a uniform test, call it SAT, based on some rigid and easy to verify criteria. This new test will then for all practical purposes replace the plethora of diplomas that have themselves replaced the uniform diploma the government was providing before. Would then anything have changed, except some confusion? And as the United States show, would this not yield a private monopoly instead of a public one? Have we really gained?