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As Higher Education Expands, Is It Contributing to Greater Inequality?. LLAKES Conference University of London July 5-6, 2010. The Debate.
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As Higher Education Expands, Is It Contributing to Greater Inequality? LLAKES Conference University of London July 5-6, 2010
The Debate • Longstanding tradition in human capital theory that there is positive relation between distribution of education & distribution of earnings, and that policies that increase education in the labor force are a “good” way to reduce economic and social inequality. • The technical debate is about what happens to inequality as the average level of schooling in the labor force rises. • A second debate is about whether labor market analysis can be separated from State incomes policies; that is, whether the State can or should be neutral in the way society distributes income, and whether this better explains how income is distributed than does educational expansion or education distribution.
The Technical Debate • Possible positive relation between rising level of education and variance of education in the labor force. • The “effect” of increasing average level of education may increase income equality up to a certain level and then decrease. • Demand for education in the labor force may also change as schooling expands and the variance of education declines. This changes the payoff, or ROR, to various levels of schooling.
The Political Debate • Incomes policies versus the “natural” forces of the market and technological change in influencing income distribution. • Political debate is related to the technical debate through the returns to education. • If RORs are essentially a market phenomenon, State is just an educational investor searching for efficient strategies for increasing HC. If RORs are considered to be influenced by incomes policies, then the State’s fiscal, spending, and other incomes policies are key and educational expansion less important.
The Case for Incomes Policies • Freeman on Canada versus US in 1980-2000. Same technological change, but much greater increase in income inequality in the US. Britain versus Scandinavia. • Pre- and post-tax and spending policies of States in LA and Europe (Figure 1).
The Relation of Investment in Education to Income Inequality • This relation needs to be viewed in the larger context of State incomes and investment policies. • Also part of a more complex relationship between education and economic growth and between economic growth and income distribution. Though growth has traditionally been linked (positively) to more unequal Y distribution, now many economists think that high inequality may hinder growth. • Even if the State’s role is to invest optimally in education for growth, the pattern of RORs may be such that such investment may contribute to more unequal income distribution; for example, if ROR to HE is higher than to primary schooling.
The Standard Human Capital Model • log Yi = Yi + rSi + e • If we take the variance of both sides of the equation, • Var (log Yi) = • = r2Var (S) + S2Var (r ) + 2rS Cov (r,S)
Findings and Biases • Findings that Y distribution is negatively related to S as measured by years of schooling and positively related to Var (S), although others show no relation. Do not include ROR. • But RORs have changed over time, rising for HE relative to lower levels even as HE expands. Positive relation between r and S contributes to increasing inequality as S increases. • Measuring S by years of schooling underestimates S differences between high inequality countries, which generally spend less per student, so coefficient of S is biased upward. • High inequality countries spend relatively more on HE, so coefficient of Var (S) is also biased upward.
Changing Distribution of Education and Relation to Y Distribution • All countries in our sample increased average years of education in labor force. • Std. deviation from mean increased as countries expand education--dispersion increases, then levels off and eventually declines as countries reach average of upper secondary school. • Observing the Y distribution changes over time, we observe little relation between changes in the distribution of education and in Y distribution. • Need to add 9-10 points to Ginis in the MENA region in 1996-2000 because they are measured in consumption distribution.
Spending on Education, 1980-2006 • One reason it is difficult to get close relation between Var (S) and Var (Y) is that countries may change how much they spend on a given year of schooling. • If HC is measured by investment in each worker rather than years of schooling, cost per year has to be taken into account. • Measures of relative spending per pupil (private plus public) suggest that many countries have greatly reduced relative spending per pupil in tertiary education as tertiary education has expanded. • This suggests that the investment pattern in education when combined with the leveling off of increases in Var (S) as measured in years of schooling should have contributed to greater equality.
The Role of Changing RORs • One of the features of the 1980s and 1990s has been the worldwide rise in RORs to investment in university education relative to RORs to investment primary and secondary education. • This change coincided with the worldwide increase in primary and secondary school completion that began in the 1970s. • The rise in RORs to HE vary from region to region, in part related to incomes policies.
Changing RORs and Y Distribution • Regions vary. In Latin America, RORs to HE have generally risen since the 1980s, and this has contributed to greater inequality, probably offsetting at least some of the decline in relative spending/student in HE (except in Peru, where both ROR and spending rose). • In East Asia, RORs are lower than in LA, and have remained fairly stable, suggesting that Var (S) and the declining relative investment/student in HE may have contributed to greater equality in Y distribution. • In the MENA, RORs to HE are even lower, and stable (Morocco declining). With declining investment/student in HE but rising Var (S), this should all end up with little impact of educational changes on Var (Y).
How Expanding HE Relates to Y Distribution • In countries with high RORs to HE, expanding HE should lower payoff and should contribute to more equal Y distribution. Especially true for more developed countries. • But since HE has always been highly differentiated, with different SES groups (on average) attending different types of institutions, and spending/student varies, Y distribution could become more unequal as HE expands. • This would be especially true if spending on those institutions attended by the mass of new (lower SES students) falls relative to spending on the “elite” institutions. • We see little of this trend in Europe and the US up to 2005, but if increasing differentiation occurs in the future, even if RORs are equal across groups, HE expansion could contribute to greater Y inequality.
