Private education and inequality in the knowledge economy

Abstract

This article explores the consequences of public and private spending on education at all levels, looking at skills and income inequality. We use data for 22 affluent democracies from 1960 or 1995 (depending on data availability) to 2017. High levels of public education spending consistently lower income inequality, both measured as wage dispersion and as the education premium. In contrast, higher levels of private education spending are associated with both higher wage dispersion and a higher education premium. We show that this effect works in part through differential skills acquisition. Public education spending raises the math scores of 15-years old students at the mean and at the 25 th percentile, but private education spending has no effect on skills at these levels. We find the same pattern among skills of adults; public education spending raises skills at the 25 th percentile and the mean; private spending has no effect. Finally, we also show that higher levels of adult skills indeed depress the education premium.

Do social investment policies reduce income inequality? An analysis of industrial countries

“…Huber and Stephens (2014) report that education spending reduces market income inequality. Huber et al (2020) show that public education spending reduces wage dispersion.…”

“…The following is no more than a speculative interpretation, but I suggest that in countries with high education and/or ALMP spending, the skills of workers towards the lower end of the income distribution may be relatively high (even though their pre-tax and transfer income may be low), and it may make their income salvageable with redistributive policies, such as various social benefits and income assistance. Huber et al (2020) suggest that public education spending reduces wage dispersion partly by raising the skills (math scores) at the mean and 25th percentile of the skill distribution, though their dependent variable is pre-tax and transfer wage dispersion. It is easier for low-income individuals to get back up on their feet with the help of social policies and redistribution, if they have skills thanks to education and vocational training.…”

Poverty, inequality, and redistribution: An analysis of the equalizing effects of social investment policy

“…This interpretation is the possibility that in countries with high education and/or ALMP spending, the skills of workers at the low end of the income distribution may be relatively high (even though their pre-tax and transfer income may be under the poverty line), and it may make their income salvageable with redistributive policies, such as various social benefits and income assistance. On this score, Huber et al (2020) report the empirical results showing that public education spending raises the math scores of 15-year-old students at the mean and at the 25th percentile, and also that public education spending raises skills of adults at the 25th percentile and the mean of the skill distribution.…”

The Financialization of Health and Education and Inequality in Twenty-first Century Brazil

“…This conclusion is not surprising given the results of previous studies of the matter. Huber, Gunderson, and Stephens (2020), analyzing data from 15 developed countries, have concluded that an increase in public spending on education reduces income inequality, and da Costa and Gartner (2017) have argued the same for spending on education and health for Brazil from 1995 to 2012. According to Medeiros and Souza (2013), however, the way in which public spending is generally allocated in Brazil does not play a role in reducing inequality because the allocation of public funds is determined by institutions created for the sole purpose of preserving the privileges of a small ruling elite (for more information see Almeida, 2022).…”