Higher Education And Economic Inequality Essay

Subject Categories

Income Distribution | Inequality and Stratification | Labor Economics


Inequality Decomposition, Within-Group Inequality, Income Distribution, Perception, Reference Groups, Merit-Based Aid, Need-Based Aid, Lorenz Curve, Higher Education


This dissertation consists of three chapters all around the subject of inequality. The first chapter provides a novel analysis of the trend in income inequality in the United States between 1979--2013. There are two ways in which this chapter contributes to the literature. First, I analyze how much of the existing inequality in the U.S. is due to the demographic changes that happened over this period. Using microdata from Luxembourg Income Study and after decomposing inequality into within- and between-age group components, I find that the within-group share of overall inequality in the U.S. is high and steady compared to other developed countries. I also find that about 17 percent of the rise in inequality in this period is due to the between-group component (life-cycle effects). Second, I provide a regression analysis to explain cross-group variations in inequality during the period. I estimate that most of the rise in inequality has happened among middle-aged men while inequality among women, especially among married women has, in fact, decreased. This more granular analysis of inequality can help us investigate the causes of inequality, which would be impossible if we only look at a single inequality statistic.

The second chapter focuses on an important aspect of economic inequality -- the question of how people perceive inequality and whether these perceptions deviate in any meaningful way from statistical measures of inequality. Perceptions of inequality have been shown to affect happiness, job satisfaction, and political support for redistribution, and studies have also shown that individuals tend to `misperceive' inequality. Using a novel approach I find that individuals across different countries are able to correctly estimate the shape of the income distribution of the country where they reside. I also find that perceptions of inequality are frequently shaped by reference groups such as those formed according to educational attainment, age, and gender. Across countries, I find that education is a more important reference group where access to education (more specifically to higher education) is better. In addition, I find that age-related reference groups are more important in societies with higher intergenerational mobility. Lastly, gender reference groups are more relevant in countries where gender disparities are more accepted and more pronounced.

In the third chapter, using model in which the assignment of skills to tasks is determined by relative productivities and are endougenously determined by ability, access to higher education, and technology, I find the effect of different educational aid schemes (including need-based aid, merit-based aid, or a combination of the two) on the distribution of wages. I calibrate the model using NLSY97 data and find that in general, determining what policy minimizes inequality depends on the elasticities of demand for higher education of each ability/human capital group, the labor shares of each group, and the share of resources devoted to each group. Given the model parameters, both merit-based and need-based policies are preferred to a policy based on both merit and need. Moreover, under the model parameters, a need-based policy reduces wage inequality more than a merit-based policy.

Recommended Citation

Hadavand, Aboozar, "Essays on Economics of Inequality" (2017). CUNY Academic Works.

The global economic downturn has caused serious pain to individuals across the world and threatens to widen significantly further the gap between haves and have-nots, in developed and developing societies alike. The crisis, however, has also forced governments, organizations and individuals to step back and fundamentally re-examine their practices and values. This year served as a reminder that collectively we need to balance financial profit with long-term sustainability, individual gain with social justice, and progress with prudence.

Education – primary, secondary and tertiary – is perhaps the most critical means of improving the welfare of disadvantaged populations, particularly as more and more of the world enters into the global knowledge society. It is a cornerstone for improving both social justice and economic productivity. Education, however, should be viewed as inextricably linked to the health, social, economic and security status of individuals and societies. As such, education is not the responsibility of governments and the education sector alone, but is better positioned as a core concern of the entire community, including families, business and other organizations. The old adage, “It takes a village to raise a child,” is never more true than in the educational arena. To reduce the gap between the haves and the have-nots, we need to embrace broad access to quality education as our strongest social value.

The topic of overcoming inequality through education is extensive, and includes all levels of education in both developed and developing societies. As someone trained in epidemiology, I am a firm believer in early childhood intervention as a means of improving early literacy and ultimately educational and health outcomes for disadvantaged populations. In my discussion, however, I will focus on my current area of responsibility and expertise: mechanisms for fostering quality, and ensuring access for disadvantaged populations in higher or post-secondary education in North America.

In the global knowledge society, universities play perhaps the most critical role in helping a country improve its economic productivity and social quality of life. Universities educate the skilled, internationally engaged and creative individuals needed as entrepreneurs and leaders for businesses to compete effectively; they create the research, scholarship and knowledge that underlie the development of value-added products and processes and the innovative applications that bring these into broader societal access. They provide a hub for high-level international networks and partnerships. As such, it is vital that the higher education sector focuses on performance and quality, as well as accessibility, to ensure that society reaps maximum value from its investment.

A stable funding base is of course key to quality. But with this as a given, two key factors underlie quality in higher education:

  • Understanding the importance of differentiated mission amongst institutions in a system, and understanding who you serve. A differentiated higher education sector, in which universities, government, business and society clearly understand, and fund appropriately, a broad range of university missions, in geographically distributed universities and colleges;
  • A commitment to ongoing institutional accountability and transparency in measurement of performance against appropriate criteria, with concrete indicators, against both the institution’s past performance and peers.

Understanding your mission and your stakeholders: In education, as with clothing, one size should not fit all. Perhaps the most dramatic change in education over the last decades has been the so-called “massification” of higher education, in which a larger and larger segment of the population is now participating in some form of post-secondary education. Higher education today fills a huge array of societal needs, including but not limited to:

  • vocational training for trades and professions (including the credentialing of immigrants and refugees);
  • the development of knowledge and skilled workers focused on the needs of individual regions;
  • advanced education, including the development of ethical leadership, entrepreneurship, high impact research and scholarship, and creative skills, to create the highly skilled workers needed for countries to compete in the national and global knowledge economies; and
  • the creation of strategic partnerships for the production of internationally competitive research and scholarship, ideally with knowledge users, such as business, the healthcare system, government and non-profit organizations.

Community colleges, regional universities and research-intensive universities can all make profound contributions to society – as long as they embrace and live a meaningful institutional mission. A corollary of understanding mission is also understanding who it is you serve. For some institutions, this may be primarily a local community, and particularly governments and businesses with a need for workers with specific vocational skills. For others, the key stakeholders may be local, national and international. Simply put, the foundation of excellence is knowing who you are and what you are trying to do. Only then can universities and colleges develop and implement the strategies needed to thrive for maximum contribution and impact on both social equality and economic terms. Governments, too, require mechanisms that recognize and fund institutions of higher education based on these differential missions and contributions.

A focus on performance: Another trend in recent years has been an increased emphasis on measuring performance in the higher education sector, as demonstrated in part by the proliferation of national and international rankings. As universities become more and more crucial to a region or country’s performance in the global knowledge economy, governments and societies are demanding accountability for their investment.

A commitment to measuring performance and researching and implementing best practices, within the context of an institution’s individual mission, is vital to fostering quality. Finding indicators that truly capture performance in higher education can be difficult, as many vital contributions, such as the knowledge transferred to business and organizations through employment of recent graduates, are difficult to measure. There is a lively ongoing debate as to whether too much emphasis has been put on patents and licences, for example, as a measure of knowledge transfer. Universities and governments need to continue work to develop optimal indicators. The process is, and needs to be, profoundly iterative, one that changes as a society’s needs and context changes.

The key here, as with mission, is differentiation. A community college will have a different set of indicators and peer institutions, than a regional or a research-intensive institution, but should have no less of an emphasis on performance. Institutions of higher education can look to like-missioned institutions to measure performance and share best practices. To improve quality, this process must weave itself throughout the daily work of an institution and be embraced by its members, with continual research, implementation, evaluation and adaptation based on this iterative cycle of evaluation. National and regional culture and character can play a role, but I strongly believe that best practices between institutions with similar missions can be shared effectively (sometimes more easily) across borders.

Inclusion, Access and Funding
Increasing access to higher education for socio-economically disadvantaged populations is a challenge, largely due to the multiple factors involved. For example, the economic development status of a nation can predict which mechanisms will best serve this goal, and the mechanisms will be different in more economically developed nations. As well, family context and commitment to education, education and income levels of parents, geographical factors, quality of primary and tertiary education and support provided to disadvantaged populations (both before and after entry into university), access to information on the benefits of higher education all play a role. Due to the complexity of the problem, no one sector, whether government, universities, business or non-profit, can provide solutions, but need to work in partnership.

In working to address a range of complex scientific, scholarly, professional practice and social issues, universities as institutions benefit greatly from increased accessibility, where exposure to the perspectives of individuals from diverse backgrounds and circumstances, and who identify with different segments of the broader community enrich the learning experience. As the world globalizes and shrinks, integrating together students, professors and staff with a wide variety of backgrounds – socio-economic, cultural, and geographic – can be an indispensible part of providing a stimulating and high performing academic environment. Both for our own health and the health of society around us, universities need to continue to reach out to engage those who have the potential to succeed as members of a university or college community, but who lack the means to participate with special measures. The factors that universities can most directly influence are reducing financial barriers, providing bridging mentorship and support for disadvantaged populations, and access to information and role models demonstrating the long-term life benefits of university.

Regarding financial barriers, our experience in developed countries is that lower or no tuition does not lead to greater university completion rates. In Canada, for example, Quebec has the lowest university tuition of any province, but this policy has not promoted greater access. Quebec has the third-lowest graduation rate (from undergraduate degrees) of Canada’s ten provinces. Nova Scotia, on the other hand, has the highest tuition, but also the highest university graduation rate. Instead, moderate tuition rates can ensure that those who are able to pay a greater share of the full costs of education do so. This then allows us to reinvest a portion of tuition revenue into financial aid for economically disadvantaged students, thus increasing access. Tuition fees plus an institutional commitment to growing student aid, plus incenting philanthropy, can increase participation more than free tuition.

Contributions to the cost of education by families and students who can afford it also increase the perceived value of education and the long-term stability of the university funding base. Again, the responsibility for funding higher education works best as a partnership among government, students, families, business, alumni and philanthropists. When there is an overreliance on one of these groups, unexpected events such as a change in government or a precipitous stock market decline can wreak havoc on a university’s ability to plan for the long-term, thus hindering quality.

Heather Munroe-Blum, PhD
Principal and Vice-Chancellor, McGill University


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