Investing in our Young People

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This paper develops econometric models of skill formation that distill the essence of recent empirical findings from the literature on child development. The goal is to provide a theoretical framework for interpreting the evidence from a large empirical literature, for guiding the next generation of empirical studies, and for formulating factually based policy.

The plan of this paper is as follows. Part II presents the evidence. Part III presents simple formal models that summarize the evidence using economic theory. In Part IV we report on the results from recent research that estimates the new economic models of skill formation. In Part V we test the model by conducting out-of-sample prediction checks and we use the best-performing models to simulate the impact of different policies aimed at reducing poverty. We conclude Part V with a discussion demonstrating that the future of the U.S. economy is linked to the quality of American youth. If we fail to produce a skilled, educated workforce, our economic performance in the future will not be as strong as in the past. Part VI concludes.

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