Susan Mayer
The past generation has seen growing disparities in hourly wages, annual
earnings, and household income. Hundreds of studies have explored the
causes of this growth in income inequality, but almost no research has
looked at the consequences of this trend. In her Harris School paper "How
Did the Increase in Economic Inequality between 1970 and 1990
Affect American Children's Educational Attainment?" University of Chicago Professor
Susan Mayer examines the effect of growing inequality on educational attainment
for low-income and high-income children. Results indicate that inequality
has adverse effects on low-income children's educational outcomes but
benefits high-income children.
Key Finding
Since the 1970s, economic inequality has risen. The growth in inequality
did not lead to an increase in high school graduation and may have lowered
it slightly, especially for low-income youths. In contrast, the growth
in inequality appears to have increased college graduation -but only among
youth in the top half of the income distribution. In theory, rising economic
inequality is, in part, the result of the increase in returns to schooling.
The greater the return to schooling, the more likely youth are to stay
in school. Mayer, however, finds that little of the increase in college
graduation is attributable to the rise in the returns to schooling.
Therefore, she turns to the question of why inequality has these effects.
She considers several theories about how economic inequality could affect
children's educational attainment. She divides these into two categories:
effects due to parents' income and effects due to the consequences of
other people's income. To avoid state differences that might affect education,
she compares children who live in the same state.
Mayer finds that a child's own family income does not account for the
effect of inequality on their schooling. Inequality affects children's
behavior in ways that are independent of their household income. The effect
of inequality, rather, is due to the effect of other people's income.
When the rich get richer, they benefit from positive interpersonal comparisons.
However, as the poor get poorer, they suffer from more negative interpersonal
comparisons. These comparisons affect their educational attainment.
The growth in inequality, in sum, probably reduced high school graduation
among low-income children, and increased college graduation among high-income
children. This increase is not due to rising incomes among high-income
families; rather, other macro effects matter considerably more.
Because economic inequality seems to have some benefits, at least for
affluent children, it is a challenge to policymakers to try to reduce
the potentially harmful effects of inequality on low-income children without
eliminating the potentially beneficial effects for higher income families.
Background
Using the following theoretical framework, Mayer tests the hypothesis
that the effect of inequality is different for rich and poor children.
Effects Due to Parent's Income—If
additional income increases poor children's educational attainment more
than rich children's educational attainment, then a costless income
transfer from rich families to poor families will increase overall educational
attainment. If true, a reduction in income inequality should increase
educational attainment.
Effects Due to Other People's Income—Imagine
two children whose family income is identical. Child A lives in an affluent
area and Child B lives in a middle-class area. Child A may have better
role models and access to better schools and other institutions than
Child B. That child, however, might also feel more alienated and stressed
if his or her family cannot afford the same things as other families.
She might also find it harder to keep up with her more affluent classmates.
Child B might feel more self-confident because he or she is relatively
affluent and might get better grades than his poorer classmates. Nevertheless,
Child B's school and other neighborhood institutions might be
worse.
Relative deprivation theory posits that high levels of inequality
make the poor feel worse off, increasing their alienation and stress,
which may result in lower expectations for their children. The role
model hypothesis suggests that children model the behavior of those
around them. If an increase in inequality makes some households better
off and changes their children's behavior for the better, this may have
positive effects for poorer children. Conversely, an increase in inequality
can make the poor even poorer, which may subsequently increase the number
of negative role models.
When inequality increases, low-income children are more relatively deprived.
They may also have more positive and more negative role models. How factors
like these combine to make Child A or Child B better off is not well understood.
Changes in political and social behavior may also result from
increasing inequality and affect educational attainment. For example,
voters' attitudes toward redistributive policies may change with the level
of inequality. Similarly, high levels of inequality may induce parents
to send their children to private schools, thus making them less invested
in public schools. Economic inequality may affect the degree of economic
segregation because the rich and poor will have less in common. This
may, in turn, reduce poor children's well-being.
Methodology
Mayer used Panel Study of Income Dynamics (PSID) data to estimate the
effect of state-level economic inequality measured during adolescence
on children's chances of completing high school, entering college, and
completing four years of college by the time they are twenty-four years
old. The state gini coefficient is used as a measure of inequality. Mayer
tries various strategies for controlling state characteristics, that,
when omitted, may bias the estimated effect of inequality. She controls
state mean income, the state unemployment rate, and the racial and ethnic
composition of the state. She also includes region and year fixed effects.
She also controls characteristics of children's own families.
Policy Briefs are designed to highlight key
policy implications and to broaden the dissemination of policy-related
research. These Briefs are funded by the Irving B. Harris Graduate
School of Public Policy Studies at the University of Chicago.
Download a copy
of this study.
For more information, contact Jamie Rosman at (773) 702-2287 or HarrisSchool@uchicago.edu.
