Determinants of Human Capital Formation

Abstract

Human capital is crucial for individuals’ economic prosperity. As such, differences in human capital are largely responsible for existing inequalities within society, making it essential to understand the determinants of individual human capital formation. This dissertation presents three empirical papers that explore various hypotheses related to both the investment and return dimension, of why there may be differences in individual human capital formation. <br /> Chapter 2 is joint work with Laura Ehrmantraut and Pia Pinger, and explores students' expectations about the returns to completing higher education and provides first evidence on perceived signaling and human capital effects. We conducted a survey among a large and diverse sample of students at different stages of higher education to elicit counterfactual labor market expectations for the hypothetical scenarios of leaving university with or without a degree certificate. Our findings indicate substantial perceived returns to higher education. Moreover, using within-individual fixed effects models, we document substantial expected labor market returns from signaling, whereas perceived productivity-enhancing (human capital) returns seem to be less pronounced. Perceived graduation premia are enduring, leaving little scope for expected employer learning. <br /> Chapter 3 presents causal evidence that a relatively mild event of family distress can have lasting negative consequences in a context with high-stakes standardized testing. I investigate how children's educational outcomes are affected by experiencing a common form of family distress - the death of a grandparent - shortly before taking a test that co-determines secondary school track placement. I employ administrative registers from the Netherlands that allow me to obtain causal estimates by exploiting the quasi-random timing of death with respect to the track placement test. The findings show that grandparental loss at an unfortunate time leads to reduced test performance, and consequently an increased likelihood of attending or graduating from the lowest track of secondary education. These negative effects on secondary school outcomes are further aggravated by the subjective teacher recommendation, as children who lost a grandparent receive a lower track recommendation. The possibility to participate in a makeup test and switch tracks later-on mitigates part of the negative effects, although it is not able to fully offset the initial setback. <br /> Chapter 4 analyses how a family's economic environment influences parental investments in children's development. Worsening economic conditions can incentivize parental investments by raising the importance of human capital accumulation in ensuring later-life success. Using a large representative German survey, in a regional and time-fixed effects setting, I estimate the causal impact of the local unemployment rate on parental investment measures. I find that a rise in the unemployment rate increases measures of maternal support, academic interest and homework assistance. Furthermore, heterogeneity analysis suggests that the responsiveness of parenting behavior on economic incentives differs by parental and child background characteristics such as parental locus of control and secondary school track.