Why Doesn't Tufts Offer Business Majors?
If you fancy yourself a future Fortune 500 CEO of a designer shoe label or aspire to be the next Don Draper and “buy the world a Coke”, you may…
First semester is coming to a close, which I have a lot of thoughts about. Some of these are about having one more semester at Tufts. In another category, is thinking about the progress I have made on my thesis thus far, on which I’m making a presentation for my thesis seminar class. I would like to share this progress with you and I promise I will take out as much econ jargon as I can (if you want a version in econ language, I would love to talk to you about it, shoot me an email). I’m going to focus on the purpose of my thesis - why am I writing about wealth accumulation in the housing market anyways? And then I will attempt to explain econometrics in the most straight forward way possible, and I hope you’ll find it as incredible as I do. In sum, I’m trying to figure out whether low income households accumulate more wealth while renting a home, or owning one.
If we think of housing as a human right, then it’s crucial to study housing from as many angles as possible. Currently, there are many government programs to subsidize housing both for renters and owners (although the subsidies to homeowners are often more indirect; through tax breaks for example). These programs, however, are not targeted at low income households, which is problematic because they have the hardest time finding housing. Furthermore, it has been proven that both minority and low income households are discriminated against in the housing market, one reason for my focus on low income households. This may mean waiting longer for a subsidized apartment or receiving a mortgage with a higher interest rate. Research on this topic will have implications for policy makers. Most clearly, it will give them insight on whether to focus housing programs on renting or owning. And it may push them to design new programs directed at low income households.
It’s no secret that plenty of economists have taken a stab at answering this same question, so what distinguishes my study from all the other ones? First off, I am using the most recent data from the dataset that is most often used by economists to answer this question, the Panel Study of Income Dynamics. Run out of the University of Michigan, the dataset asks detailed questions on housing, income, and wealth. Recent data is crucial when writing about wealth accumulation due to the recession/housing crisis in 2008/2009. It’s clear that the ability to accumulate wealth changes significantly during a recession, but does this change persist after a recession? And if so, for how long? Using data to 2013 will allow me to answer these questions more completely than past studies.
Secondly, I’m using some fancy statistics to account for selection bias. What’s selection bias, you ask? Let me explain. It’s actually a fairly simple concept, as far as economics goes. I’m trying to compare wealth accumulation for people who own a home to people who rent a home. Selection bias complicates my study because people who own a home are a self-selecting group of people who have inherently different characteristics from people who want to rent a home. They probably have a higher propensity to save money for the future and have more stable employment. Because of this inherent difference between renters and owners, I cannot compare a group of owners to a group of renters, overtime, and see which one accumulated more wealth.
Instead, I am using a statistical method that mimics a randomized control trial. You’ve probably read about one of these before—it’s when researchers assign one group a treatment, a drug for example, and leave another group alone, they do not take the drug. A truly randomized experiment is unfeasible and unethical when it comes to housing: that’s where the past data comes in. I can act on the fact that there are households in the study that switch from renting to owning. And after controlling for some demographic differences (think race, gender, income, location) I can see how much wealth a household that switches from renting to owning accumulates in a given year. Think about that, it’s pretty incredible. Statistical techniques are pretty much doing a randomized control trial for me (not perfectly, however). Unfortunately I do not yet have an answer to my question, but I will in just a few more months, and I will be delighted to share it with you when the time comes.
Allie can be reached at allison.wainer@tufts.edu
If you fancy yourself a future Fortune 500 CEO of a designer shoe label or aspire to be the next Don Draper and “buy the world a Coke”, you may…