Race and Human Capital

1
Race and Human Capital
2
Three Mini-Discussions

• Affirmative Action in Higher Education
• Explaining Racial Differences in K-12 Achievement
• Revisiting cultural theories of differences in
  educational outcomes

3
Race Conscious Affirmative Action in Higher
Education

• What is marginal social benefit?
• Marginal private benefit -Increase in utility
  (income) associated with attending selective
  college/university
• Externalities
• Benefits of diversity
• Reduction of racial/ethnic inequality
• What is marginal social cost?
• Marginal private cost (including stigmatization)
• Foregone opportunity for others- Decrease in
  utility (income) associated with next best
  alternative
• Externalities
• Increased racial conflict

4
Gap in K-12 achievement

• Differences in costs
• Disparity in allocation of public resources
• Higher cost of capital (because of less wealth)
• Identity costs- acting white
• Differences in benefits
• Differences in educational preparedness
• Teacher expectations/teacher input
• Stereotype threat
• Imperfect information
• Labor market discrimination

5
Economic Analysis of Culture

• Let E represent a unit of human capital
• Purchase of E yields two kinds of benefits -
  increase in future earnings and positive social
  identity. The second benefit may depend on the
  individuals social group
• Individuals will supply E such that the marginal
  private benefit of E will equal marginal private
  cost.
• Supply of E from a group that derives positive
  social identity from E will be greater than
  supply of E from group that does not.

6
Economic Analysis of Culture- cont.

• Employer demand for E depends on marginal revenue
  product of E.
• Employers may hold beliefs about variations in
  the Marginal Revenue Product of E by race and
  gender. A negative stereotype will reduce demand
  for E A positive stereotype will increase the
  demand for E.
• Real as opposed to perceived differences in
  marginal revenue product of E have the same
  effect on demand.

7
Implications

• In the absence of stereotypes or real racial
  differences in marginal revenue product, a group
  with a positive identity effect of E will have
  more E but a lower price per unit.
• A positive stereotype will increase E for that
  race/gender group, and increase the price it
  receives per unit of E.