Educational Opportunity and Income Inequality / Paul Willen, Igal Hendel, Joel Shapiro.

Format:

Book

Author/Creator:

Willen, Paul.

Contributor:

National Bureau of Economic Research.

Hendel, Igal.

Shapiro, Joel.

Series:

Working Paper Series (National Bureau of Economic Research) no. w10879.

NBER working paper series no. w10879

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2004.

Summary:

Affordable higher education is, and has been, a key element of social policy in the United States with broad bipartisan support. Financial aid has substantially increased the number of people who complete university - generally thought to be a good thing. We show, however, that making education more affordable can increase income inequality. The mechanism that drives our results is a combination of credit constraints and the `signaling' role of education first explored by Spence (1973). When borrowing for education is difficult, lack of a college education could mean that one is either of low ability or of high ability but with low financial resources. When government programs make borrowing or lower tuition more affordable, high-ability persons become educated and leave the uneducated pool, driving down the wage for unskilled workers and raising the skill premium.

Notes:

Print version record

November 2004.