The Economics of Inequality
and Human Development
James J. Heckman
University of Chicago
Co-Director, Human Capital and Economic
Opportunity Working Group, INET
Geary Institute, University College Dublin
American Bar Foundation
Policy Lecture
Organized by the Centre for the Microeconomic Analysis of Public Policy
and the Centre for Microdata Methods and Practice with UCL
British Academy
September 3, 2013
...What does the economist economize? " 'Tis love, 'tis
love," said the Duchess, "that makes the world go
round." "Somebody said," whispered Alice, "that it's
done by everybody minding their own business." "Ah
well," replied the Duchess, "it means much the same
thing." Not perhaps quite so nearly the same thing as
Alice's contemporaries thought. But if we economists
mind our own business, and do that business well, we
can, I believe, contribute mightily to the economizing,
that is, to the full but thrifty utilization of that scarce
resource Love—which we know, just as well as anybody
else, to be the most precious thing in the world.
Sir Dennis H. Robertson
The most valuable of all capital is
that invested in human beings; and of
that capital the most precious part is
the result of the care and influence of
the mother.
Alfred Marshall (1890)
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994/95
1995/96
1996/97
1997/98
1998/99
1999/00
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
2006/07
2007/08
2008/09
2009/10
2010/11
2011/12
Growth in Equivalised Household Disposable Income, UK
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Lower Quintile
Source: Office for National Statistics
2nd Quintile
3rd Quintile
4th Quintile
Upper Quintile
Difference in wages between the richest tenth and
poorest tenth (90-10 log weekly earnings ratios), full-time
men and women, 1970-2009
Source: Machin (2010): National Equality Panel Analysis; 1968-96 New Earnings Survey
(NES) and 1997-2009 Annual Survey of Hours and Earnings (ASHE)
The traditional approach to
inequality is “alms to the
poor” or “redistribution.”
We can reduce
inequality and promote
social mobility by solving
the skills problem.
Predistribution, not just
redistribution.
The Decline of the American Blue-Collar Middle Class
Comparable estimates of the intergenerational elasticity
between father and son earnings for the United States
and 21 other countries
Intergenerational Mobility and Inequality
Need a deeper
understanding of how
skills are formed, what
skills are important, and
what skill formation
policies are effective.
Fragmented solutions
often don’t work—
recent evidence suggests
more effective policies.
Invest in prevention,
not remediation.
Success depends on
having the right skills
and abilities.
We must help troubled
families in fostering the
skills required for their
children’s success.
The importance of the
early years: skills beget
skills. Understanding the
dynamics of skill
formation and the
synergisms in the
production of skills.
Develop cognition and
character from
conception to birth
throughout the
adolescent and adult
years.
The GED shows why
character matters more
than smarts alone.
The Myth of Achievement Tests:
The GED and the Role of
Character in American Life
James Heckman, John Eric Humphries, and Tim Kautz
• Forthcoming, University of Chicago
Press, 2013
Cognitive Ability by Educational Status
Much of the black-white
achievement gap in who
enters college in the
U.S. is due to gaps in
ability at the time
children apply to school
and not family income.
Differences in College Entry Proportions between Minorities
and Whites, mid-1990s
Mean Achievement Test Scores by Age
by Maternal Education
Child Cognitive and Non-Cognitive Skills at Age 3 by Mother's
Highest Education Level
Bracken School Readiness
Index
Source: Geary WP 2007/02
Note: UK Millennium Cohort Study data
Strength and Difficulties Index
Children Under 18 Living in Single Parent Households
By Marital Status of Single Parent (U.S.)
Dependent Children Living in Non Traditional Families, UK
50%
Lone parent
Cohabiting couple
40%
30%
20%
10%
0%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: Labour Force Survey, Office for National Statistics
Note: Less than 1% of dependent children lived in civil partner or same-sex cohabiting couple families in 2012. Therefore, percentages for these
families are not sufficiently robust to be published.
Total Fertility Rate, and Share of Fertility inside/outside
Marriage, 1938 to 2011, England and Wales
3.5
3.0
TFR
2.5
2.0
Total Fertility Rate
1.5
Fertility within marriage/civil partnership
1.0
0.5
Fertility outside marriage/civil
0.0
1938 1944 1950 1956 1962 1968 1974 1980 1986 1992 1998 2004 2010
Source: Live Births in England and Wales by Characteristics of Mother, 2011. The report was published in
2013
Live Births by Type of Registration, 1986, 2001, and 2011,
England and Wales
90%
80%
79%
70%
60%
60%
53%
47%
50%
40%
40%
30%
21%
20%
10%
0%
1986
2001
Within marriage/civil partnership
2011
Out of Wedlock
Source: Live Births in England and Wales by Characteristics of Mother, 2011. The report was published in 2013.
Families with Dependent Children by Family Type in the UK,
1996 and 2012
1996
80%
70%
2012
71%
60%
60%
50%
40%
22%
30%
26%
14%
20%
7%
10%
0%
Married or civil partner
couple family
Cohabiting couple family
Lone parent family
Source: Labour Force Survey, Office for National Statistics
Notes: 1. Civil partnerships were introduced in the UK in December 2005. 2. Cohabiting couples include both
opposite- and same-sex couples.
Indicators of school readiness by parental income group, UK:
Average assessment for group as percentile of overall range of
assessments
Source: An anatomy of economic inequality in the UK – Summary (2010)
Differences in the early childhood caring environment,
by SEP quintile
Source: Poorer children’s educational attainment: how important are attitudes and behaviour? (2010) Goodman, A.,
and P. Gregg (Eds.).
Parental attitudes and behaviors, by SEP quintile
Source: Poorer children’s educational attainment: how important are attitudes and behaviour? (2010) Goodman, A.,
and P. Gregg (Eds.).
Parental attitudes and behaviors, by SEP quintile (age 14)
Source: Poorer children’s educational attainment: how important are attitudes and behaviour? (2010) Goodman, A.,
and P. Gregg (Eds.).
Cognitive Evolution through Time, Perry Males
Male Cognitive Dynamics
Yet the Perry Program has a
statistically significant annual
rate of return of around 6%–
10% per annum—for both
boys and girls—in the range
of the post–World War II stock
market returns to equity in the
U.S. labor market, estimated
to be 6.9%.
Closing the Gap: Perry Program Applied to
Disadvantaged Black Population: MALE
Outcome
Intra-Black Gap
Black-White Gap
Gap
Gap after
Program
Change
in Gap
Gap
Gap after
Program
Change
in Gap
Employed at 27
0.07
0.03
-59%
0.15
0.14
-5%
Labor Income at 27
(2010 dollars)
7,116
4,124
-42%
16,780
16,274
-3%
Employed at 40
0.04
-0.16
-533%
0.15
0.11
-24%
Labor Income at 40
(2010 dollars)
14,393
6,507
-55%
27,626
26,327
-5%
Source: Heckman et al. (2013)
Closing the Gap: Perry Program Applied to
Disadvantaged Black Population: FEMALE
Outcome
Intra-Black Gap
Black-White Gap
Gap
Gap after
Program
Change
in Gap
Gap
Gap after
Program
Change
in Gap
Employed at 27
0.15
-0.10
-170%
0.09
0.05
-44%
Labor Income at 27
(2010 dollars)
11,352
7,545
-34%
2,294
1,663
-27%
Employed at 40
0.02
0.01
-48%
0.02
0.02
-9%
Labor Income at 40
(2010 dollars)
8,684
3,506
-60%
4,563
3,759
-18%
Source: Heckman et al. (2013)
Personal Behavior Index by Treatment Group
Control
Personal Behavior Index by Treatment Group
Treatment
Socio-Emotional Index by Treatment Group
Control
Socio-Emotional Index by Treatment Group
Treatment
Decomposition of Treatment Effects, Males
Decomposition of Treatment Effects, Females
Early interventions
reducing problem
behavior lower the
probability of engaging
in unhealthy behaviors
in adulthood.
Effects on Health
Perry Preschool Intervention, Age 40
Treatment Effects
Abecedarian Intervention, Health Effects at Age 35
Treatment Mean
Control Mean Treatment p-value
Systolic Blood Pressure
125.79
143.33
0.018
Diastolic Blood Pressure
78.53
92.00
0.024
Pre-Hypertension
0.68
0.78
0.235
Hypertension
0.10
0.44
0.011
53.21
42.00
0.067
Cholesterol/HDL-C
3.89
4.69
0.057
Abdominal Obesity
0.65
0.87
0.136
Metabolic Syndrome
0.00
0.25
0.009
HDL Cholesterol
Source: Campbell, Conti, Heckman, Moon, Pinto, and Pungello (2012)
Synergisms: Skills Enhance Each Other
Cognitive and
Socioemotional Skills
Later remediation is
costly and, as currently
configured, is usually
ineffective.
The policies that are effective
for adolescents provide
mentoring and integrate
schooling and work. They
focus on developing social
and emotional skills, teaching
conscientiousness.
Mentoring can be
effective—
workplace-based
intervention shaping
noncognitive skills.
Early development is
as important as
education in promoting
wages, employment,
and health.
Disparities by Education (Post-compulsory Education)
Note: Conti and Heckman (2010). Author's calculations using BCS70.
Disparities by Education (Post-compulsory Education)
Note: Conti and Heckman (2010). Author's calculations using BCS70.
Disparities by Education (Post-compulsory Education)
Note: Conti and Heckman (2010). Author's calculations using BCS70.
Returns to a Pound Invested
Predistribution, not
redistribution.
Prevention, not
remediation.