Inequality, Education, and Government Policy

Federal Reserve chairman Ben Bernanke says "the most important factor" in rising inequality "is the rising skill premium, the increased return to education." According to this view, widening inequality is justified by differences in productivity. Others, however, believe government policy plays an important role in generating inequality.

In general, those who believe rising inequality is due to a rising skill premium dismiss arguments that government action in areas such as minimum wage legislation, changes in taxes, and anti-union policies are behind changes in equality. On the other side, there are strong arguments against the skill-based technological change argument that inequality is due to market forces rewarding higher productivity.

However, as this editorial shows, even if education based differences in productivity are the source of rising inequality, the underlying cause can still be government policy that has reduced the ability of the disadvantaged to get the education they need:

Shrinking Opportunities, Editorial, Washington Post: Guess which high school graduate is more likely to go to college: the ill-prepared student who is financially well-off or a high-achieving student from a low-income family? According to a new study, they have pretty much the same chance -- and that is an embarrassment to the American educational system.

The sad story of the obstacles low-income and minority students face in enrolling and graduating from college has been documented in two recent reports by the Education Trust. Giving the lie to a perception that there has been progress in widening educational opportunities, the independent research and advocacy organization shows greater disparities between the haves and have-nots than there were 30 years ago. It rightly takes aim at federal, state and college policies and practices. Particularly troubling was the group's finding that the nation's flagship universities, generally the oldest and most prestigious public campuses, are becoming less accessible to low-income and minority students. Or, in the words of Education Trust Director Kati Haycock, America's top public schools are getting "whiter and richer" as high school graduating classes are becoming more diverse.

At the heart of the problem are growing inequities in how financial aid is apportioned. There are fewer state resources, and the stagnant federal policy on student aid has not kept pace with soaring tuition. But the universities also bear responsibility for decisions that divert money from low-income students who can attend college only if they receive financial assistance. In a bid to enhance their prestige by becoming more selective, public universities are using financial aid to compete for high-income students who are able to go to college without assistance.

Consider that the average institutional grant aid in 2003 to students from families earning more than $100,000 a year was higher -- at $3,823 -- than the $3,691 awarded to students with family incomes of less than $20,000. ... An estimated 400,000 students each year aren't able to attend a four-year college because of financial considerations...