Published by EH.NET (November 2008)

Claudia Goldin and Lawrence F. Katz, The Race between Education and Technology. Cambridge, MA: Harvard University Press, 2008. vii + 488 pp. $40 (hardcover), ISBN: 978-0-674-02867-8.

Reviewed for EH.NET by Peter H. Lindert, Department of Economics, University of California ? Davis.

Claudia Goldin and Lawrence Katz have produced a definitive economic history of American education. This reviewer?s high hopes for their book project have not been disappointed. The final product is tightly reasoned and easy to grasp by anyone who cares about the country?s educational history. Even those who are shy of mathematics can simply slip past the occasional show of regressions and equations, guided by the authors? trouble-free prose. Those of you who have seen several Goldin-Katz papers from this project are assured that the whole is greater than the sum of those parts.

Two featured insights tie the whole book together, with the first of these leading logically to the second. The first insight: It?s home grown education that has mattered, not technology or immigration. That is, contrasting historical movements in American wage inequality are explained mainly by revolutions in education, not by shifts in technology or by waves of immigration. Goldin and Katz make this argument persuasive by wisely choosing to focus on the task of explaining contrasts in wage movements between long periods. Wage inequality, by occupation or by educational level, rose in the late nineteenth century, fell dramatically in the first half of the twentieth, and then rose in most decades of the second half (though not in the 1970s). In any one period, all three of those forces ? home grown education, technology, and immigration ? shared in determining the width of the pay gaps. Similarly, trends in all three shared in the task of explaining trends in the pay gaps. Yet the key insight emerges from contrasting those long trends, a temporal contrast analogous to economists? ?differences in differences? analysis. What made periods of rising inequality different from periods of falling inequality is that the rate of advance in education was stronger in the latter periods. In the title roles, technology has been the steady tortoise, while education has raced like the erratic hare. At times it ran ahead, at times it fell asleep, and now it races to catch up.

The first featured insight introduces their search for the second. How did America achieve those revolutions in education, and what explains their timing? The second insight is that American education had a unique set of egalitarian virtues, which weakened or were subverted later. The six original virtues were public funding, public provision, the separation of church and state, fiscal decentralization, forgiveness of youthful errors, and gender neutrality. Some of these virtues waxed and waned, though not because of any unifying dynamic. Three of them ? public funding, public provision, and secularization ? rose across the middle and late nineteenth century and never retreated, for better and for worse. Two others – forgiveness and gender equality ? have been permanent American strengths, with a couple of wrinkles in the mid-twentieth century. Fiscal decentralization has the most complicated dynamic of all.

The opening part of the book (Introduction and Chapters 1-3) previews everything, especially the first key insight about the technology-education race. Its factual summaries deserve to be worked into our reading lists and lectures. For an overview of the distinctive history of American educational progress across the data-rich twentieth century, see Chapter 1. Chapter 2 fixes our attention on earnings inequality, the dependent variable that dominates the book. Reading lists could well combine this chapter?s summary of wage inequality in the twentieth century with the Piketty-Saez overview of what happened up at the very top of the distribution. Chapter 3 on skill-biased technological change debunks the notion that the computer era is a radical departure, and drives home the point that skills bias has advanced more evenly over the decades than most people think. It ends with the key pivot point that ?It?s not technology,? which turns us toward the second key insight, namely that fluctuations in educational progress play the leading role in explaining inequality movements.

The second part of the book dwells on the unevenness of that progress. This country went through three great waves. In the nineteenth century America?s (and Canada?s) public primary schooling became the envy of the world. Chapter 4 on the ?origins of the virtues? sketches this wave, with definitive coverage of the six egalitarian virtues. Chapters 5 and 6 explain the second great wave, in which America became the world pioneer in public high schools with its own egalitarian emphasis on a wide menu of courses for all. Goldin and Katz show that several economic forces explain why the timing of this grass-roots movement differed across regions. Their quantitative accounting downplays compulsory school laws and child labor laws, which they find had only small, though statistically significant, effects. Rather, the analysis hints at a political economy in which some regions developed high schools faster than others because their political structures were more egalitarian. In the high school wave, as in the earlier primary school wave, the willingness to raise taxes for school unquestionably raised total schooling, and did not just crowd out private schooling.

Chapter 7 on the evolution and current state of America?s private and public colleges and universities is jam-packed with useful information. It belongs on everybody?s reading list in education economics. The main theme here is triumph: The Americans did a better job than any other country at financing higher education, and at making its institutions compete against each other. Only at the end of the twentieth century have other countries caught up in high-education enrollments, though the United States continues to dominate in research.

Two subplots in the twentieth-century advance of higher education relate to gender and to regions. The gender story exposes one of the main wrinkles in the triumph of gender equality in American education. With higher education, as with careers in teaching, women lost ground at one point in the twentieth century, though they overtook males later. Their college education fell behind a bit in the Great Depression of the 1930s, and especially in the postwar quarter-century when the GI Bill did so much for males? higher education. This wrinkle was ironed out in the 1970s, when male graduation rates stagnated and females soon became the majority of college graduates, as they continue to be in this and several other countries.

The regional story includes some reverse crowding out: The Northeast has remained behind in its tax support for higher education because it has always been so well endowed with private universities. That might not have been so remarkable if the overall attendance rate had been higher in the Northeast. Yet Goldin and Katz show us the opposite: Overall attendance remains higher in the vast North and West from Minnesota to the Pacific. In other words, something about the presence of excellent private universities actually lowered college attendance in the Northeast, other things equal. Might this quantity difference have outweighed the quality advantage of private institutions in the Northeast? Did influential ivy alums in northeastern states suppress public higher education enough to hold back regional growth?

In the final part of the book Goldin and Katz return to the race between technology and education in explaining twentieth-century movements in earnings inequality, this time with Chapter 8?s tidy quantitative analysis. The early wage compression and the later wage widening were driven by the supply and demand for the skills tied to educational attainment, with a little help from institutional movements in the power of unions and wartime wage controls. As we were warned in Part 1?s preview, the wage movements were dominated more by swings in the supply of education-related skills than in the demand for them. And on that supply side, the swings in home grown educational attainment were more important than the swings in immigration.

In Chapter 9?s finale on ?How American Can Win the Race for Tomorrow,? the authors tread warily in the minefields of current policy debates. They do not take clear sides in the war over whether extra money will improve education, despite citing Krueger?s evidence that paying for smaller class sizes does seem to help. They also refrain from judging No Child Left Behind, though they note that testing and accountability is an important issue. On local school choice mechanisms, such as vouchers and charter schools, they take a cautious position shared by this reviewer: the evidence is mixed, but school choice ?could improve the situation? for low-income families. The idea of school choice is also supported, of course, by its success in raising the productivity of higher education, covered back in Chapter 7. They also seem to accept the evidence that the country has underinvested in infant education.

Where next for research in the economic history of American education? This is the perfect time to ask, now that Goldin and Katz have achieved closure on so many questions. The view from their shoulders reveals two key areas to explore.

First, who was it that under-invested in education? Did private individuals pass up money lying on the sidewalk, or was it the political process failing to realize high social rates of return that took into account both fiscal effects and knowledge externalities? For the purposes of their book, Goldin and Katz are able to finesse these tough questions. By focusing on contrasts between American epochs, they successfully explain the contrasts in ?returns? in terms of movements in wage ratios that were dramatic enough to drive movements in all definitions of the rate of return on education. Yet we still need to explore the separate levels of the private versus ?social? (private and fiscal only) versus overall rates of return, the last being the one that draws on the recent literature on externalities. Only then can we distinguish private irrationality, or private capital constraints, from a failure of policymakers to capture high societal returns to extra years of education. The new research will have to proceed on different levels for different time periods. For the present day debate, scholars will have to jump the higher econometric hurdles imposed by Heckman, Lochner, and Todd in their rejection of the convenient Mincer return analysis. For earlier periods, it should suffice to make rougher contrasts between the likely private and fiscal returns for different eras and different places.

A related frontier is the political economy of education finance. Who voted for or against taxes for schools, in which states, and why? Goldin and Katz have advanced the political economy agenda with econometric evidence on the determinants of high school and college attendance, and the funding for public state universities. Yet there is much more to be done.

On both these research frontiers, our progress will be accelerated because Goldin and Katz have paved the way.

Peter H. Lindert is Research Professor of Economics at the University of California – Davis. His latest book is Growing Public: Social Spending and Economic Growth since the Eighteenth Century, two volumes, Cambridge University Press, 2004.