The Economics and Psychology of Inequality and Human Development

Abstract

Recent research on the economics of human development deepens understanding of the origins of inequality and excellence. It draws on and contributes to personality psychology and the psychology of human development. Inequalities in family environments and investments in children are substantial. They causally affect the development of capabilities. Both cognitive and noncognitive capabilities determine success in life but to varying degrees for different outcomes. An empirically determined technology of capability formation reveals that capabilities are self-productive and cross-fertilizing and can be enhanced by investment. Investments in capabilities are relatively more productive at some stages of a child's life cycle than others. Optimal child investment strategies differ depending on target outcomes of interest and on the nature of adversity in a child's early years. For some configurations of early disadvantage and for some desired outcomes, it is efficient to invest relatively more in the later years of childhood than in the early years.

Figure 1

Probability of being a white collar worker by age 30 (males). Higher deciles are associated with higher values of the indicated variable. Figure (i) and Figure (ii) are marginals derived from the joint distribution by setting the other variable at its mean. Source: Heckman et al. (2006).

Figure 2

Trend in mean cognitive score by maternal education. Each score standardized within observed sample. Using all observations and assuming data missing at random. Source: Brooks-Gunn et al. (2006).

Figure 3

Age 0–2, female white children, by family type. Source: Moon (2008) analysis of CNLSY data. Cognitive stimulation is measured by how often parents read to children, and the learning environment in the home. Emotional support is measured by how often child receives encouragement (e.g., meals with parents).

Figure 4

Decomposition of treatment effects expressed as a percentage gain over control outcomes for selected outcomes by cognitive, socioemotional and other determinants, Perry Preschool Program. Scales differ by gender. Stanford Binet scores at ages 8, 9 and 10 are used as cognitive measures. Scores representing misbehavior at ages 6–9 are used as socioemotional measures. (+) and (−) denote the sign of the total treatment effect. Results are reported for statistically significant treatment effects. The set of statistically significant outcomes differs across gender groups. Source: Heckman, Malofeeva, Pinto, and Savelyev (2009).

Figure 5

Ratio of early to late investment in human capital (I₁/I₂) as a function of τ₁/τ₂ for different values of complementarity (φ). Assumes r = 0. Source: Cunha and Heckman (2007b).

Figure 6

Percentage increase in total investments as a function of child initial conditions of cognitive and noncognitive capabilities. Lighter shading corresponds to larger values.

Figure 7

Optimal early (left) and late (right) investments by child initial conditions of cognitive and noncognitive capabilities maximizing aggregate education. Lighter shading corresponds to larger values.

Figure 8

Densities of ratio of early to late investments maximizing aggregate education versus minimizing aggregate crime