Page 416 - The Principle of Economics

424 PART SIX
THE ECONOMICS OF LABOR MARKETS
16, while others require attendance until age 17 or 18. Moreover, the laws have changed over time. Between 1970 and 1980, for instance, Wyoming reduced the school-attendance age from 17 to 16, while Washington raised it from 16 to 18. This variation across states and over time provides data with which to study the effects of compulsory school attendance.
Even within a state, school-attendance laws have different effects on differ- ent people. Students start attending school at different ages, depending on the month of the year in which they were born. Yet all students can drop out as soon as they reach the minimum legal age; they are not required to finish out the school year. As a result, those who start school at a relatively young age are required to spend more time in school than those who start school at a relatively old age. This variation across students within a state also provides a way to study the effects of compulsory attendance.
In an article published in the November 1991 issue of the Quarterly Journal of Economics, labor economists Joshua Angrist and Alan Krueger used this natural experiment to study the relationship between schooling and wages. Because the duration of each student’s compulsory schooling depends on his or her state of residence and month of birth, and not on natural ability, it was possible to isolate the productivity-enhancing effect of education from the ability-signaling effect. According to Angrist and Krueger’s research, those students who were required to finish more school did earn significantly higher subsequent wages than those with lower requirements. This finding indicates that education does raise a worker’s productivity, as the human-capital theory suggests.
Although establishing the benefits of compulsory schooling is useful, it does not by itself tell us whether these laws are desirable. That policy judgment re- quires a more complete analysis of the costs and benefits. At the very least, we would need to compare the benefits of schooling to the opportunity cost—the wages that the student could have earned by dropping out. In addition, requir- ing a student to stay in school may have external effects on others in society. On the one hand, compulsory school attendance may reduce crime rates, for young dropouts are at high risk of engaging in criminal activity. On the other hand, stu- dents who stay in school only because they are required to do so may interfere with the learning of other students who are more committed to their educations.
THE SUPERSTAR PHENOMENON
Although most actors earn very little and often have to take jobs as waiters to support themselves, actor Robin Williams earned $23 million in 1997. Similarly, although most people who play football do it for free as a hobby, Brett Favre earned $6.75 million as a pro quarterback. Robin Williams and Brett Favre are superstars in their fields, and their great public appeal is reflected in astronomical incomes.
Why do Robin Williams and Brett Favre earn so much? It is not surprising that there are differences in incomes within occupations. Good carpenters earn more than mediocre carpenters, and good plumbers earn more than mediocre plumbers. People vary in ability and effort, and these differences lead to differences in in- come. Yet the best carpenters and plumbers do not earn the many millions that are common among the best actors and athletes. What explains the difference?
To understand the tremendous incomes of Robin Williams and Brett Favre, we must examine the special features of the markets in which they sell their services. Superstars arise in markets that have two characteristics: