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2012 June 24 Sunday
Parental Human Capital Endowments Key To Son's Success

The standard leftist interpretation of enduring intergenerational differences in educational achievement, career success, and income is that upper class people give their offspring big advantages in the form of better educations and connections into the business world. A study with Swedish subjects found the income of dads was less important than the skills of dads.

Sons of fathers with high incomes tend to end up with higher than average incomes themselves, but new research shows that it's not just dad's money that helps a son on his way.

According to a study recently published in the Journal of Political Economy, human capital endowments passed from father to son—perhaps in the form of smarts, advice, work ethic, or some other intangible—could be more important to a son's success than the size of dad's paycheck.

Skills are tied to intellectual ability. You can't develop, say, the skills of an electrician if your IQ is 80. You can't develop the skills of an electric power plant manager or a large construction site manager if your IQ is 90. You can't develop the skills of a medical doctor or a civil engineer if your IQ is 100.

To separate the effects of the fathers' skills from fathers' incomes they looked for fathers who, due to local labor market conditions, made less than their skills would predict.

"We know there's a correlation between fathers' income and sons'." said David Sims, an economics professor at Brigham Young University and one of the study's authors. "What's gotten less attention is the mechanism. We wanted to see if the intergenerational income correlation is due to money—what we can buy for our kids—or if human capital attributes passed from father to son play a role as well."

The problem is that separating the two inputs is tricky. On average, fathers with higher human capital endowments also tend to have higher incomes, so it's hard to tell which factor is doing what. Sims and his colleagues used a statistical model and a rich dataset to try to disentangle the two.

The authors' methodology builds on the following thought experiment. Take two smart, similarly skilled and educated fathers. Say one lived in a town with a robust labor market and he had a big salary. The other father wasn't so lucky. He lived in a town with a depressed labor market, and had much lower earnings despite his comparable human capital. If money is the only thing that matters in the intergenerational transfer of income, then we'd expect that the son of the lucky father would end up with a higher income than the son of the unlucky father. However, if human capital matters, the two sons may end up with more similar incomes.

Note the study didn't account for maternal (genetic or nurture) influence on child development.

"We can conclude that, for the men in our dataset, differing human capital endowments passed from father to son account for about two-thirds of the overall intergenerational income relationship," Sims said. "We don't offer a final answer here, but we do offer some boundary conditions and present a methodology that could help unravel the question."

I am reminded of an adoption study of Korean babies in the United States found no economic benefit to being raised in upper class households. Also see the follow-up post by Alex Tabarrok on misconceptions in some reactions to that report. Note that this study found that for the range of economic classes examined there is not some marginal lasting nurture benefit from being raised in higher income families. This strongly argues that genes are far more important than environment over a large range of environments found in families in America. This isn't going to hold true in, say, India or China. But it does hold true in the United States.

In an industrialized country the advantages of having higher income parents are not that great. Whereas the advantages of having a high IQ are huge. I'd rather have a 130 IQ and poor parents than a 120 IQ and wealthy parents. Years after leaving home the extra 10 IQ points will help with decision-making and learning all day and every day. The effects of childhood experiences will fade in comparison to one's on-going intellectual development and daily mental work product.

By Randall Parker    2012 June 24 10:22 AM Entry Permalink | Comments (4)
2012 March 04 Sunday
Least Skilled Little Employed

As long time readers know, I want to put a total end to low skilled immigration. Every immigrant to the United States should be very smart and very useful. The era when lots of human brawn was needed for manufacturing and construction is long gone and more manual labor tasks are getting automated every day. To give you a sense of just low little market value the least skilled have: Most high school drop-outs do not have jobs.

Less than 40% of the 25 million Americans over age 25 who lack a high-school diploma are employed. And those who are working don't earn much.

High school drop-outs have much lower IQs on average than college graduates. It is not like we can do miraculous educational reforms that will enable schools to turn drop-outs into brilliant engineers and entrepreneurs. With rare exceptions the drop-outs aren't smart enough to learn skills that will make them highly useful in an economy where even truck drivers will eventually be replaced by robots.

By Randall Parker    2012 March 04 09:51 PM Entry Permalink | Comments (32)
2011 March 19 Saturday
IQ Boosts National Income

News of this best kept secret occasionally leaks out. I hope I'm not carried away in the night for reporting it but some German and British researchers have rediscovered the obvious.

It's not just how free the market is. Some economists are looking at another factor that determines how much a country's economy flourishes: how smart its people are. For a study published in an upcoming issue of Psychological Science, researchers analyzed test scores from 90 countries and found that the intelligence of the people, particularly the smartest 5 percent, made a big contribution to the strength of their economies.

Human capital is the cognitive ability and accumulation of skills on top of that ability.

In the last 50 years or so, economists have started taking an interest in the value of human capital. That means all of the qualities of the people who make up the workforce. Heiner Rindermann, of the Chemnitz University of Technology, wanted to look more closely at human capital, and particularly the factor that psychologists call cognitive ability. "In other words, it's the ability of a person to solve a problem in the most efficient way—not with violence, but by thinking," Rindermann says. He wrote the new study with James Thompson of University College London.

Many measures of cognitive accomplishment and ability were examined.

The researchers collected information on 90 countries, including far-off lands from the U.S. to New Zealand and Colombia to Kazakhstan. They also collected data on the country's excellence in science and technology—the number of patents granted per person and how many Nobel Prizes the country's people had won in science, for example.

The intelligence of the top 5% matters most. Of course this makes American educational policy at the grade school and high school level pretty backward, with resources increasingly shifted toward the least able at the expense of the smartest.

They found that intelligence made a difference in gross domestic product. For each one-point increase in a country's average IQ, the per capita GDP was $229 higher. It made an even bigger difference if the smartest 5 percent of the population got smarter; for every additional IQ point in that group, a country's per capita GDP was $468 higher.

Immigration policy should be turned upside down to incorporate this finding. But good luck with that given that Barack Obama controls the White House and liberals in the media find common sense to be anathema.

The smartest people are most important for determining the wealth of a society. Smart people are more productive on average.

"Within a society, the level of the most intelligent people is important for economic productivity," Rindermann says. He thinks that's because "they are relevant for technological progress, for innovation, for leading a nation, for leading organizations, as entrepreneurs, and so on." Since Adam Smith, many economists have assumed that the main thing you need for a strong economy is a government that stays out of the way. "I think in the modern economy, human capital and cognitive ability are more important than economic freedom," Rindermann says.

As Chinese living standards rise the correlation between IQ and national wealth will grow even stronger. Unfortunately, while selective pressures used to select for genes that boost IQ that is no longer the case. Worse still, median income for American men is already on a long term decline. In America only the smartest and most skilled still experience rising incomes. (PDF)

After three decades of sustained increases, the return to skills as typically measured by the earnings ratio of college graduates relative to high school graduates is at a historic high. In 1963, the hourly wage of the typical college graduate was approximately 1.5 times the hourly wage of the typical high school graduate. By 2009, this ratio stood at 1.95. The entirety of this 45 percentage point rise occurred after 1980. In fact, the college-to-high- school earnings ratio declined by 10 percentage points in the 1970s.

Moreover, this simple comparison of the wage gap between college and high school graduates probably understates significantly the real growth in compensation for college graduates relative to high school graduates in recent decades. College graduates work more hours per week and more weeks per year than high school graduates, spend less time unemployed, and receive a disproportionate share of nonwage fringe benefits, including sick and vacation pay, employer-paid health insurance, pension contributions, and safe and pleasant working conditions. And these gaps in nonwage benefits between high- and low-education workers have each grown over the past several decades.10

People who are not smart are experiencing declining incomes. Unemployment of lower IQ people will soar as as more tasks become automated.

By Randall Parker    2011 March 19 10:52 AM Entry Permalink | Comments (6)
2011 February 16 Wednesday
Why Do Smart People Get Drunk More?

Dennis Mangan says drunkenness by the smartest is an escape from all the dummies in our midst.

Satoshi Kanazawa: More intelligent people are more likely to get drunk. Dr. Kanazawa has his theory about this, and I have mine: intelligent people need to escape the reality of mass stupidity.

We can't really escape the dummies because the dummies are making more babies than the smarties.

My take: Drunkenness lowers effective IQ and therefore it enables smart people to lighten their load of worries by basically joining the rest of the population in thinking simpler and fewer thoughts. So drunkenness is pretty much a temporary embrace of stupidity.

What's needed: A drug that blocks worries and negative thoughts while not reducing IQ.

By Randall Parker    2011 February 16 11:20 PM Entry Permalink | Comments (15)
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