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PUBLIC POLICY, HIGHER EDUCATION, AND INCOME INEQUALITY IN THE UNITED STATES: HAVE WE REACHED DIMINISHING RETURNS?

Published online by Cambridge University Press:  01 June 2015

Daniel L. Bennett  and
Richard K. Vedder
Daniel L. Bennett
Affiliation:
Economics, Patrick Henry College
Richard K. Vedder
Affiliation:
Economics, Center for College Affordability and Productivity
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Social Philosophy and Policy , Volume 31 , Issue 2 , Spring 2015 , pp. 252 - 280
Copyright
Copyright © Social Philosophy and Policy Foundation 2015 

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References

1 Bennett, Daniel L., “Myth busting: The Laissez Faire Origins of American Higher Education,” The Independent Review 18, no. 4 (2014): 503–568.Google Scholar

2 See Scott Winship’s essay “Has Rising Income Inequality Worsened Inequality of Opportunity” in this volume for a more thorough discussion of the relationship between income inequality and economic mobility.

3 Govtrak, “House Vote #126 in 1965” and “Senate Vote #215 in 1965,” retrieved December 25, 2013 from http://www.govtrack.us/congress/votes/89-1965/h126 and https://www.govtrack.us/congress/votes/89-1965/s215, respectively.

4 Quoted in Bowen, William G., Chingos, Matthew M., and McPherson, Michael S., Crossing the Finish Line: Completing College and America’s Public Universities (Princeton, NJ: Princeton University Press, 2009), 1.CrossRefGoogle Scholar

5 Barack Obama, “State of the Union Address: February 24, 2009,” retrieved March 27, 2012 from http://www.whitehouse.gov/the\_press\_office/Remarks-of-President-Barack-Obama-Address-to-Joint-Session-of-Congress.

6 White House Office Hours, “College Affordability,” August 21, 2013, http://www.whitehouse.gov/blog/2013/08/21/white-house-office-hours-college-affordability.

7 See e.g., Okun, Arthur M., Equality and Efficiency: The Big Tradeoff (Washington DC: The Brookings Institution, 1975).Google Scholar

8 Goldin, Claudia and Katz, Lawrence F., The Race Between Education and Technology (Cambridge, MA: Harvard University Press, 2008).Google Scholar

9 For a review of this literature, see Acemoglu, Daron, “Technical change, inequality, and the labor market,” Journal of Economic Literature 40 (2002): 7–72.CrossRefGoogle Scholar

10 Bowen, William G., Chingos, Matthew M., and McPherson, Michael S., Crossing the Finish Line: Completing College and America’s Public Universities ( Princeton, NJ: Princeton University Press, 2009).CrossRefGoogle ScholarArchibald, Robert and Feldman, David H., Why Does College Cost So Much? (New York: Oxford University Press, 2011).Google Scholar

11 Krugman, Paul, “And Now for Something Completely Different: An Alternative Model of Trade, Education, and Inequality,” in Feenstra, R. C., ed., The Impact of International Trade on Wages (Chicago: University of Chicago Press, 2000), 16.Google Scholar

12 Michael Spence, A., “Job Market Signaling,” Quarterly Journal of Economics 87, no. 3 (1973): 355–74.CrossRefGoogle Scholar

13 Stiglitz, Joseph E., “The Theory of Screening, Education, and the Distribution of Income,” The American Economic Review 65, no. 3 (1975): 299.Google Scholar

14 Paul Krugman, “And Now for Something Completely Different,” 28.

15 Hendel, Igal, Shapiro, Joel, and Willen, Paul, “Educational Opportunity and Income Inequality,” Journal of Public Economics 89 (2005): 841–70.Google Scholar

16 Knight, J. B. and Sabot, R. H., “Education Expansion and the Kuznets Effect,” American Economic Review 73, no. 5 (1983): 1132–36.Google Scholar

17 Robinson, Sherman, “A Note on the U Hypothesis Relating Income Inequality and Economic Development,” American Economic Review 66, no. 3 (1976): 437–40.Google Scholar

18 Gregorio, José De and Lee, Jong-Wha, ”Education and Inequality: New Evidence from Cross-Country Data,” Review of Income and Wealth 48, no. 3 (2002): 395–416.CrossRefGoogle Scholar

19 Caroline M. Hoxby and Bridget Terry, “Explaining Rising Income and Wage Inequality among the College-Educated,” NBER Working Paper 6873 (January 1999).

20 Bergh, Andreas and Fink, Günther, “Higher Education, Elite Institutions and Inequality,” European Economic Review 53 (2009): 376–84.CrossRefGoogle Scholar

21 See e.g., Rati Ram, “Can Educational Expansion Reduce Income Inequality in Less-Developed Countries?” Economics of Education Review 8, no. 2(1989): 185–95; José De Gregorio and Jong-Wha Lee, “Education and Inequality,” 395–416.

22 See also e.g., Andreas Bergh and Günther Fink, “Higher Education Policy, Enrollment, and Income Inequality,” Social Science Quarterly 89, no. 1 (2008): 217–35. Andreas Bergh and Günther Fink, “Higher Education, Elite Institutions and Inequality,” 376–84.

23 Rojstaczer, Stuart and Healy, Christopher, “Where A Is Ordinary: The Evolution of American College and University Grading, 1940-2009,” Teachers College Record 114, no. 7 (2012): 1–23.Google Scholar

24 Bok, Derek, American Higher Education Today, (Princeton, NJ: Princeton University Press, 2013).Google Scholar

25 Babcock, Philip S. and Marks, Mindy, “The Falling Time Cost of College: Evidence from Half a Century of Time Use Data,” Review of Economics and Statistics 93, no. 2 (2011): 468–78.CrossRefGoogle Scholar

26 Andreas Bergh and Günther Fink, “Higher Education, Elite Institutions and Inequality,” 376–384.

27 Arum, Richard and Roska, Josipa, Academically Adrift: Limited Learning on College Campuses (Chicago: The University of Chicago Press, 2010).CrossRefGoogle Scholar

28 Vedder, Richard, Denhart, Christopher, and Robe, Jonathan, Why are Recent College Graduates Underemployed? (Washington, DC: The Center for College Affordability and Productivity, January 2013).Google Scholar

29 Baum, Sandy, Ma, Jennifer, and Payea, Kathleen, Education Pays 2013: The Benefits of Higher Education for Individuals and Society (New York: College Board, 2013).Google Scholar

30 College attainment data source: U.S. Census Bureau, Current Population Survey. Retrieved September 19, 2013 from http://www.census.gov/hhes/socdemo/education/data/cps/historical/index.html.

31 Income inequality data source: U.S. Census Bureau, Current Population Survey, Annual Social and Economic Supplements. Retrieved September 19, 2013 from http://www.census.gov/hhes/www/income/data/historical/inequality/index.html.

32 Bennett, Daniel L., Lucchesi, Adam R., and Vedder, Richard K., For-Profit Higher Education: Growth, Innovation and Regulation (Washington, DC: The Center for College Affordability and Productivity, July 2010).Google Scholar

33 Government expenditure and population data are from the U.S. Census Bureau’s Annual Surveys of State and Local Government Finances. Enrollment data are from the U.S. Department of Education. Nominal dollar figures adjusted using the CPI-U.

34 Between 1950 and 1970, the 80/20 ratio declined from 9.5 to 7.6, a decrease of 20 percent, and the family income Gini coefficient declined from 0.379 to 0.353, a 6.9 percent decline. Meanwhile, the college attainment rate nearly doubled, growing from 6.2 to 11 percent. Since 1970, the college attainment rate has nearly tripled reaching 30 percent in 2010. Over this same period, the 80/20 ratio grew to 12.5 and the Gini coefficient to 0.44, increases of 64.5 and 24.6 percent, respectively.

35 We use 2004 in lieu of 2010 as the end period here due to data availability. State level inequality data are not available prior to 1970.

36 N, T and K are the number of states, time periods and independent variables, respectively.

37 v is a parameter to be estimated, while t is the period of observation, rescaled such that t = 1 for 1970.

38 James K. Galbraith and Travis Hale, “State Income Inequality and Presidential Election Turnout and Outcomes,” Social Science Quarterly 89, no. 4 (2008): 887–907.

39 One interpretation of the result from column 2 of Table 2 is that the relationship between inequality and attainment is exponential. This is potentially misleading however. A rejection of the null hypothesis that the coefficient on the linear college term equals zero does not preclude that there is in fact no relationship, particularly when the model may be misspecified. Column 2 does not include any additional covariates that likely impact the income distribution. As such, the coefficient estimates likely suffer from omitted variable bias. It is nonetheless worth retaining in the results for comparative purposes.

40 We estimate this rate when both the linear and quadratic college terms are statistically significant. For instance, college* is 0.23 in column 6 for the specification spanning the period 1970–2004. The average state attainment rate over the 35-year period is greater than 23 percent in four states — Colorado, Connecticut, Maryland and Massachusetts. College* is 0.23 and 0.24 in columns 9 and 10 for the 1970–1984 and 1985–2004 periods, respectively. None of the states has an average attainment rate greater than 23 percent over the 1970–1984 period, but fifteen states (Alaska, California, Colorado, Connecticut, Hawaii, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Utah, Vermont, Virginia, Washington) have an average attainment rate above 24 percent for the 1985–2004 period.

41 The ten were Alaska, California, Colorado, Connecticut, Delaware, Hawaii, Maryland, Massachusetts, Utah, and Washington.

42 Arizona, New Hampshire, New Jersey, New Mexico, New York, Oregon, Vermont, and Virginia joined the ten states indicated in the previous footnote.

43 Arizona, Delaware, and New Mexico.

44 For more information on various inequality measures and their properties, see Bennett, Daniel L. “The Concept and Measurement of Economic Inequality,” in Essays on Institutions, Economic Development, and Inequality, Electronic Theses, Treatises, and Dissertations Paper 8728 (2014).

45 Thomas G. Mortenson, “Family Income and Unequal Educational Opportunity, 1970 to 2011,” Postsecondary Education Opportunity, no. 245 (November 2012).

46 William J. Bennett, “Our Greedy Colleges,” New York Times, February 18, 1987.

47 Stephanie R. Cellini, and Claudia Goldin, “Does Federal Student Aid Raise Tuition? New Evidence on For-Profit Colleges,” NBER Working Paper 17827 (2012). Andrew Gillen, Introducing Bennett Hypothesis 2.0 (Washington, DC: The Center for College Affordability and Productivity, February 2012). Dennis Epple, Richard Romano, Sinan Scarpca, and Holger Sieg, “The U.S. Market for Higher Education: A General Equilibrium Analysis of State and Private Colleges and Public Funding Policies,” NBER Working Paper, 192988 (August 2013).

48 Federal aid figures include grants, loans, work study and education tax benefits. In constant 2012 dollars, this number grew from $22.2 billion in 1971–72 to $178.8 billion in 2011–12. On a per full-time equivalent student basis, the total federal aid rose from $3,106 to $11,074, a real annual compound growth rate of 3.2 percent. College Board, Trends in Student Aid 2013 (Washington, DC, 2013).

49 The BLS data were collected from the annual Statistical Abstract of the United States reports.

50 BLS reported a national female LFPR figure for 1970 that differed significantly from the Census ratio. As such, the BLS data are used for the 1971–2010 period, but the national rate for 1970 is from the Census of the Population.

51 For instance, state-level female LFPR’s are interpolated for 1980 using j = 1 and k = 2 since the actual rates are available for 1979 and 1982, but not 1981. Similarly, the figures interpolated for 1981 using j=2 and k=1. Note that X i,1980/Y 1980 = X i,1981/Y 1981 and the χ i,t is unchanged for t = 1971,..,1975.

52 With the exception of the correlation of 0.921 in 1994, the correlation for all years was above 0.95.

53 BLS is the original source of the data. The figures are reported monthly. An arithmetic average of the monthly figures is used as the annual rate.

54 Population density was used as an alternative to urbanization. Doing so does not substantially change the results.

55 Barry T. Hirsch, David A. Macpherson, and Wayne G. Vroman, “Estimates of Union Density by State,” Monthly Labor Review 124, no. 7 (July 2001).