A Lecture on Income Inequality

From UC Berkeley economist Emmanuel Saez. It takes about 40 minutes.

Working Before Grad School

A student emails me a question:

I have read all the advice on your blog, and have not found an answer to the following question. With some modifications I think it's a question a few pre-PhDs from Harvard/MIT/etc. have, so I hope I'm not being too selfish in asking.

Suppose, for the sake of argument, that I have good reason to believe I'm in the top 1% of academic-economists-to-be in my generation, possibly better.

Suppose further that I want to devote my career to important, and mostly policy-relevant, research. In the medium term I just want to be an academic (professor with tenure), but in the long term I'd want to do the sort of government roles you've done.

I have an offer to work for a management consulting firm for two years. Or I can start my PhD next year. Should I take the former option, with the aim of learning 'how the world works', how to prioritise/listen/implement, etc., or should I just complete my PhD as quickly as possible? It seems I could get away with a short stint in the private sector now, whereas there'd be no chance post-PhD on the academic track. But then the opportunity cost of two years in early 20s not doing maths is also high. I'd be very grateful for your reflections, however brief.

Great question.  Unfortunately, there is no clear answer.  I have known successful economists who have followed each of the two paths you describe.

The best path depends on your goals.  If your goal were to be a purely academic economist doing more abstract research, then taking off time before grad school is likely a mistake.  That is, if you were trying to maximize the number of publications in Econometrica and the likelihood of winning a Nobel, then go straight to graduate school, get your degree, and start writing those papers.

On the other hand, if your goal is to be the kind of economics professor who engages more directly with the real world, as it seems to be, then some real-world experience is indeed helpful.  It broadens your perspective, and it teaches you the skills to understand and communicate with non-economists.

Two years, however, is probably longer than is optimal.  My guess is that you will run into rapidly diminishing marginal value from the experience by the end of the first year.

Moreover, a PhD these days often takes five years and sometimes more.  That argues for starting sooner rather than later.  My experience is that as people start approaching the age of 30, their tolerance for living the life of a grad student declines significantly.  As marriage and children start entering your thoughts, you begin to want a real job and a grown-up income.  That may be hard to imagine now while you are a college student, but these thoughts will creep up on you faster than you think and when you least expect it.

Gender and Human Capital Returns

Here is an interesting fact: Women earn a higher rate of return from a college degree than men.  In particular:

After controlling for various demographic factors, the researchers found that female graduates earned more than $6,500 more per year than women with just a high school diploma, and more than $4,500 more than women who dropped out of college. Male graduates, by contrast, earned only about $2,700 more than high school graduates, and about the same amount as male college drop-outs. 

The findings are consistent with past research, which has showed that jobs are much more gender-segregated in low-education occupations. Female drop-outs tend to concentrate in low-paying service-sector jobs, whereas less-educated men are more likely to find work in better-paying industries such as manufacturing and construction.

HPEC

If you are a high school student, or teach economics to high school students, you most definitely will want to click here.

A Profile of Stanley Fischer

In the Washington Post.  Stan was my PhD dissertation adviser.

Why $9?

Since the State of the Union address, the minimum wage has heated up again as a political issue.  You can read my previous posts on the topic by clicking here.  (Unfortunately, some of the links in these old posts are now dead.)

There is one question I would like to see some reporter ask Alan Krueger, the president's chief economist: How did they decide that $9 per hour is the right level?  Why not $10 or $12 or $15 or $20?  Presumably, the president's economic team must believe that the adverse employment effects become sufficiently large at some point that further increases are undesirable.  But what calculations led them to decide that $9 strikes the right balance?

Econ Summer Camp

Those with an interest in the history of economic thought might want to consider this summer program.  I have been told that the program is designed primarily for faculty members in economics, other social sciences, and the humanities, though three of the twenty-five slots are reserved for graduate students.