EconPapers    
Economics at your fingertips  
 

Educational opportunity and income inequality

Igal Hendel, Joel Shapiro and Paul Willen

No 04-5, Public Policy Discussion Paper from Federal Reserve Bank of Boston

Abstract: 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 easier or 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.

Keywords: Education - Economic aspects; Income distribution (search for similar items in EconPapers)
Date: 2004
New Economics Papers: this item is included in nep-edu, nep-lab and nep-ltv
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

Downloads: (external link)
http://www.bostonfed.org/economic/ppdp/2004/ppdp0405.htm (text/html)
http://www.bostonfed.org/economic/ppdp/2004/ppdp0405.pdf (application/pdf)

Related works:
Journal Article: Educational opportunity and income inequality (2005) Downloads
Working Paper: Educational Opportunity and Income Inequality (2004) Downloads
Working Paper: Educational Opportunity and Income Inequality (2003) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedbpp:04-5

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Public Policy Discussion Paper from Federal Reserve Bank of Boston Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2020-08-08
Handle: RePEc:fip:fedbpp:04-5