Academic journal article National Institute Economic Review

As Higher Education Expands, Is It Contributing to Greater Inequality?

Academic journal article National Institute Economic Review

As Higher Education Expands, Is It Contributing to Greater Inequality?

Article excerpt

This paper reviews the various elements that enter into the relation between higher education expansion and income distribution. Contrary to the prevailing ideology, the paper suggests that under certain conditions the mass expansion of higher education can contribute to greater income inequality. These conditions are related to three important variables not usually considered in the education-income distribution model: rising returns to university education relative to secondary and primary education, decreasing public spending differences between higher and lower levels of education, and increasing spending differences between elite and mass universities. All three appear to be increasingly common features of educational expansion in developing countries, including large ones such as China, Russia, Brazil, and India, although researchers are just beginning to observe such changing patterns of spending within higher education systems. The paper discusses the role that such payoffs and government education spending patterns can play in contributing to changes in income distribution using suggestive data from the developing countries.

Keywords: Higher education; income distribution

JEL Classifications: D31: J23; O15

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Two longstanding 'traditions' are associated with human capital theory. One is that is that there is a positive relation between the distribution of education and the distribution of earnings (Mincer, 1958; Becker and Chiswick, 1966; Chiswick, 1971; Tinbergen, 1975). A second is that policies that increase education in the labour force are a 'good' way (as opposed to policies directly affecting income distribution) to reduce economic and social inequality (Murphy and Welch, 1989). However, economists have long recognised that the second proposition does not logically follow from the first. Rather, the relationship between educational expansion and inequality is complex. And because of this complexity, rapid increases in the average level of education in almost all countries in the past forty years have generally not led to income distribution becoming more equal. (1)

In this paper, I review the various elements that enter into the relation between higher education expansion and income distribution. Contrary to the prevailing ideology, I show that under certain conditions the mass expansion of higher education can contribute to greater income inequality. These conditions are related to three important variables not usually considered in the education-income distribution model: rising returns to university education relative to secondary and primary education, decreasing public spending differences between higher and lower levels of education, and increasing spending differences between elite and mass universities. All three appear to be increasingly common features of educational expansion in developing countries, including large ones such as China, Russia, Brazil, and India, although researchers are just beginning to observe such changing patterns of spending within higher education systems. With the current economic downturn and greater focus on public debt reduction, an increasingly unequal distribution of investment in higher education may also become the norm in the developed countries.

The discussions of the education-income distribution relation follow two rather different lines. There are 'technical' discussions among economists about what happens as the average level of schooling in the labour force rises. In addition, there is a discussion about whether labour market analysis can ever be separated from state distributional policies, defined here as government policies such as those on taxation, social spending, and subsidies for various income groups that influence the distribution of income, as well as minimum wage policies and legislation or executive action that is more or less favourable to labour unions. (2) This second line of discussion raises questions about whether the state can ever be or should be a neutral arbiter in the way society distributes income, and whether distributional policies are a much more powerful explanation of how income is distributed than the distribution of education. …

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