2870A

PART IIA PAPER 3 PROJECT

2. a) Identify and evaluate factors that contribute to variations in education
achievement rates at Lower Secondary level across OECD member countries.
Your explanatory variables must include average class size and teaching quality
indicators, together with other specific and general economic and social
variables that you find to be econometrically significant.
b) On the basis of your answer to a), suggest measures to increase educational
achievement levels in countries that are currently performing less well.

Word Count: 1902

Introduction
Educational attainment, defined as the percentage of the population whose highest level of
education reaches a given threshold, displays considerable variation across OECD countries,
which has been taken to be measured by school enrolment ratios (Barro 1991), focusing on
those between 25-34 years old. Educational attainment is commonly used as an output
indicator and helps to explain employability prospects in the job market for individuals
because it functions as an indicator of both human and social capital. It leads to better
earnings prospects, and according to Blanchflower (2008), greater overall satisfaction in life.
Lutz et al (2010) after controlling for many country characteristics also found that countries
with higher educational attainment in the past are more likely to have democratic political
regimes today.
This paper looks to explain the key contributing factors for these differences, and finds that
the contemporary unemployment rate, average estimated class size, parental educational
attainment, proportion of private schools, average instruction time, proportion of
immigrants and proportion of single parents are all significant in explaining this variation.
Graph 1 illustrates the variation in educational attainment. The huge range is clear, even at
the lower secondary level, such that Italy has an enrolment ratio of 32.1% whilst Poland
admits a figure of 0.9%. As per the OECD, Lower Secondary education proceeds primary
education and follows a more subject-oriented method with more specialist teachers,
therefore for individuals in countries that are able to surpass Lower Secondary Level and
complete Upper Secondary and even Tertiary education, it is evident that economic
outcomes tend to be much higher for them, so policy outcomes should be focused on
retaining students within formal education given its widespread benefit and positive
externalities.

Graph 1
Several existing literatures also recognise many important factors that explain the cross-
country variation.
There has been a recent large-scale immigration flow into many OECD countries, and whilst
migration flows are immensely diverse, Akguc and Ferrer (2015) highlight that differences in
immigrant labour market preferences rooting from cultural diversities such as language and
practices make integration to the host country labour and education markets a very mixed
experience due to the variation of institutions that exist from one country to another.
Efficient integration often led to improved educational outcomes.
Haveman (1993) explains the importance of “parents’ education as a powerful predictor of
their children’s educational attainment”, where not only do parents use their educational
attainment to teach their children, thus increasing human capital directly (Megan de Serf
2002) and help to produce “quality children” (Becker 1993), but there is also the
psychological effect on children, where attitudes towards education are transmitted, which
influences their subsequent educational outcomes having observed their parents outcome.
The work of Blatchford et al (2003) finds that smaller class sizes breed creativity, as teachers
are able to take a more personalised and humanistic approach, and it also improves
‘outcomes’ such as problem-solving. Such a trait is more developed in earlier years of
education, highlighting the importance of trading off education cost and student-teacher
ratios.
In order to conduct this analysis, data from the World Bank and OECD Statistics were used
to compile a country-level dataset. An implicit benefit of including all OECD countries in the
regression is that the consequent analysis will have greater statistical power. This is because
the regressors will have larger variation, an example of which we see in class size. Other
variables, such as the log of teacher salary are organically less variable across countries, but
nonetheless, given the nature of the experiment, analysing country level data is much more
limited relative to analysing individual level data, hence the analysis has a much smaller
degree of freedom. Some data was also extrapolated as countries had missing figures for
some years.

Model Specification
The model for educational attainment at the Lower Secondary Level can be characterised as
E=β 0+ β1 School+ β 2 Family + β3 Country + β 3 Individual+ ε (1)

where each regressor is a vector of features.

Table 1 provides a breakdown of the regressors used.
 Table 1

Variable Variable Description

Ei educattain School enrolment ratio at Lower
Secondary Level for 24-35 year
olds
Si class_size Average class size
lnavgteachersalary Log of Average teacher salary
lnavgteacherinstruction_time Log of Average compulsory
instruction time
Ci unemp Average unemployment rate

immigrant Proportion of individuals with

immigrant parents
privateschool Share of private schools in the
country
Fi singleparent Proportion of individuals with
single parents
parent_educattain Proportion of individuals whose
parents’ educational attainment
is also at Lower Secondary level

To permit for the possibility of nonlinear relationships, some variables have been expressed
in logarithmic form. For example, the variable lnavginstruction_time is used as a regressor
instead of avginstructiontime to normalise the dataset and overcome the problem of
skewness shown in Graph 2.

Graph 2
Equation (1) is estimated using OLS. This will help us determine which factors are significant
in causing variation in educational attainment. Table 2 presents the results of the regression.
Table 2

Education Attainment Results

Variable (1)
OLS
class_size -0.542***
(0.261)
unemp -1.108***
(0.282)
parent_educattain 0.287***
(0.0616)
lnavginstruction_time 19.21**
(7.638)
immigrant -0.185*
(0.105)
privateschool 0.163***
(0.0571)
singleparent -1.141**
(0.460)
lnavgteachersalary -4.491
(2.996)
Constant -50.66
(49.38)

Observations 36
R-squared 0.712
Standard error are in parentheses
*** p<0.01, **p<0.05, *p<0.1

Robustness
A Ramsey RESET test for functional form specification was ran. I concluded at the 5%
significant level that the model has been correctly specified and that we haven’t left out
interaction terms or higher power terms.
I also conducted a Breusch Pagan test for linear heteroskedasticity for the regression. The
test results affirmed that the assumption of homoskedasticity holds.
Table 3 details the results of the tests.
 Table 3

Test Breusch-Pagan test Ramsey RESET test

Null Hypothesis (H0) Constant variance Linear specification (no
omitted variables)
OLS Regression Chi2(1) = 8.17 F(3,24) = 2.67
p-value = 0.042 p-value = 0.2280

Results and Interpretation

The OLS regression results help us identify the many factors that enable significant variation
in educational attainment across OECD countries in 25-34 year olds in 2021.
Just as human capital theories would predict, our OLS coefficients show that as estimated
average class size, proportion of individuals whose parents are immigrants and
unemployment increase, Lower Secondary attainment decreases, all of which are significant
at the 10% level.
In addition, as the proportion of parents’ educational attainment at the Lower Secondary
Level, average instruction time, the share of private schools and the proportion of
individuals with single parents increase, Lower Secondary attainment increases. These
regressors all have significance at the 5% level, demonstrating their importance in explaining
attainment variations.

Model Limitations
Although this model includes key variables that explain the variation in educational
outcomes, it is very likely to be subject to endogeneity problems. This will lead to biased and
inconsistent OLS estimators, so significance testing could be misleading.
Firstly, there may be omitted variable bias, so that the regressor is correlated with
unobserved characteristics contained in the error term.
Whilst panel data is an attractive option to resolve the omitted variable bias, given limited
consistent and reliable data for multiple periods for the regressors, and the fact that country
level data does not carry out observations for the same students across the periods
investigated, it is preferable to instrument instead.
A specific case of endogeneity in this model is the variable class_size. Average class size can
easily be classified as being the result of policy, and is thus correlated with characteristics
such as teaching quality, expenditure etc. Hence, if perhaps government expenditure
towards schooling increased, this could lead to a fall in class size, and thus increase
educational attainment. As a result, the coefficient on class_size will be biased downwards.
This will make inference misleading and will also make other coefficients biased too.
To overcome this, I use the birth rate as an IV for class_size. Birth rate is correlated with
class size since it would vary cohort size so more students per classroom, and birth rate is
largely unrelated to government expenditure and education policies. Therefore it is relevant
and exogenous respectively. Having conducted a First Stage regression we also conclude a
similar result, such that ^π birth_rate in the regression of class_size on all other variables is
positive and significant.
In Table 4, the 2 Stage Least Squares results are very similar to OLS results for some
coefficients, such as unemp and parent_educattain, but we see that the coefficient of
class_size is much smaller in 2SLS and it also has a much larger standard error. It is
debatable how relevant birth rate is as an instrument because changes in the birth rate may
not necessarily affect class size when we have more important variables such as expenditure
share on education, or it may be that the time in which the data is collected may be subject
to political business cycles so class sizes are biased in one direction.

Table 4

Education Attainment Results

Variable (1) (2)
OLS 2SLS
class_size -0.542*** -0.710*
(0.261) (0.373)
unemp -1.108*** -1.142***
(0.282) (0.289)
parent_educattain 0.287*** 0.280***
(0.0616) (0.0633)
lnavginstruction_time 19.21** 21.99**
(7.638) (8.866)
Immigrant -0.185* -0.192*
(0.105) (0.107)
Privateschool 0.163*** 0.173***
(0.0571) (0.0595)
Singleparent -1.141** -1.224**
(0.460) (0.482)
lnavgteachersalary -4.491 -5.333
(2.996) (3.301)
Constant -50.66 -55.74
(49.38) (50.41)

Observations 36 36
R-squared 0.712 0.708
Standard error are in parentheses
*** p<0.01, **p<0.05, *p<0.1
Secondly, our data may have some measurement errors, because collecting data such as
class size can be a difficult variable to work out or estimate. Random errors can lead to the
estimator being closer to 0 than the truth, and this attenuation bias leads to insignificant
findings more frequently.

Policy Implications
As illustrated from the OLS and IV estimation, we observe how crucial it is for policymakers
to target education policies that are focused on increasing average instruction time in
school. In practical terms, since most countries have very similar total number of school
days, because the regressor is actually compulsory instruction time, it is from an efficiency
point of view that underperforming countries should strive to increase how much exposure
students have to being in a classroom and are engaged in tasks. Not only will this make
attaining higher levels of education more attractive, but it will also make returns to
education much higher and will mean the state will be more cost-effective with its
expenditure, since the education system will become more productive. Overall, this should
raise attainment levels as there will be a greater benefit and return from doing so. Since
parents’ educational attainment is strongly linked to their child’s attainment, it also means
that expenditure now will be more impactful in breaking the intergenerational cycle that
would otherwise persist, creating long-lasting economic and social benefits.
Furthermore, it is clear that immigration decreases Lower Secondary attainment. On the
one hand, language and cultural barriers may discourage educational attainment for non-
native speakers, so policies aimed at improving language will allow students to improve
across all subjects, and hence be more motivated to continue education, but on the other
hand, Hunt (2012) argues that native students may perhaps be encouraged to complete
school in order to avoid competing with immigrants had they only completed an earlier
stage of education. Hence, immigration could have a dual effect, simultaneously impacting
Lower Secondary attainment.
Finally, given that education costs have been rising due to increasing average salaries of
teachers (14% at the lower secondary level), the model finds that rising salaries are not
particularly significant in explaining variations in attainment, hence at the very least
justifying the wage with more qualified teachers who are able to provide greater instruction
time for students would be much more impactful, especially for those individuals who do
not benefit from ‘social capital’ (Becker 1993) from their parents when they are away from
school.

Evaluation
Whilst the model was able to overall produce relatively accurate predictions, with more
time, I would perhaps look into instrumenting other variables, such as parental educational
attainment, which was a crucial determinant, yet it will be correlated with the cultural
attitudes of a country. Though difficult to find a reliable proxy, I would look at individual and
family beliefs and perhaps build on available aggregate measures, such as the ESCS
composite index, which was infeasible to use due to the amount of missing data. With
enough instruments, it would have been possible to implement a test for overidentification.
Additionally, the explanatory power of the model would severely benefit if there were more
significant regressors, but due to the nature of educational attainment, which in and of itself
has difficulties in measurement since most proxies do not for example account for dropout
rates or school repeaters, during my research, it was surprising to find that many regressors
did not contribute to improving Lower Secondary attainment but did so for other levels of
education. Therefore, an additional alternative focus could have been to also compare
across education levels to better understand what significantly distinguishes lower
secondary education variation.

Bibliography
Akguc and Ferrer (2015) “Educational Attainment and Labor Market Performance: an
Analysis of Immigrants in France”
Angel de la Fuente (2014) “Educational Attainment in the OECD, 1960-2010”
Barro (1991) “Economic Growth in a Cross Section of Countries”
Becker (1993) “Human Capital Revisited”
Blanchflower (2008) “Is Well-being U-Shaped over the Life Cycle?”
Blatchford et al (2003) “Are Class Size Differences Related to Pupils’ Educational Progress
and Classroom Processes? Findings from the Institute of Education Class Size Study of
Children Aged 5-7 Years”
Haveman (1993) “Children’s Prospects and Children’s Policy”
Hunt (2012) “The Impact of Immigration on the Educational Attainment of Natives”
Lee and Lee (2016) “Human capital in the long run” Journal of Development Economics
Lutz et al (2010) Demography, education, and democracy: Global trends and the case of
Iran. Population and Development Review, 36(2), 253-281
Megan De Serf (2002) “The Effects of Family, Social and Background Factors on Children’s
Educational Attainment”
OECD Interim Economic Outlook, March 2022: https://www.oecd.org/economic-outlook/
OECD statistics data centre: https://stats.oecd.org
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assessment data”
World Bank EdStats: Education Statistics | Home (worldbank.org)