Nova workboard

a blog from young economists at Nova SBE

Intergenerational transmission of poverty and inequality are a

Intergenerational transmission of poverty and inequality are a usual phenomenon in every country, basically generation after generation the low and high income groups/families tend to be the same and their differences do not tend to decrease. Policy-makers are aware of this problem and educational policies have been a usual practice to fight the problem. There are a vast set of policies implemented such as increasing the ending age of compulsory school; creating scholarships for tertiary education; investment in schools, teachers, etc.

However, when comparing the educational attainments controlling for families’ income/background, it can be concluded that individuals from high income/education families tend to obtain higher educational levels than the others. Analyzing the higher education participation rates in UK[1] by social class in the last decades[2], we can verify that individuals from high classes participate more in higher education (27% against 4% in the beginning of 60’s, where higher education was free in the United Kingdom). Participations rates in both classes have been increasing but the gap between them seem to be quite stable over time, around 30 percentage points. There are some possible explanations for the gap on educational achievements phenomenon as it will be presented.

If some individuals do not have enough money to invest in education (liquidity constraint), they would not study the desired number of years or invest the optimal amount in goods related with education (e.g. under-invest in books; choosing a “cheaper university”). This limitation may lead to a situation where equally talented people have different educational levels because some of them are forced to take an inefficient decision.

There are several policies to offset this inefficiency as subsidizing meals, transportation, books and housing or offering scholarships to alleviate students’ budgets but is it enough? According to Carneiro and Heckman (2003); Cardak and Ryan (2009) liquidity constraints do not seem to be the reason for educational gaps in United States[3] and Australia[4].

The studies showed above are country specific which have high levels of development (generally have several scholarships) and probably their way of combating liquidity constraints is being effective. Probably in other countries, especially with low levels of development, liquidity constraint may take an important role in educational participations rates across social classes but it is an open question.

The authors also argue that education is known as a cumulative process, so the gap on educational achievements do not need to come from a current liquidity constraints to enroll in the university but can be earlier liquidity constraints. There are a set of other conditions as individual genetic ability/talent, the early educational quality/investments. Without any government intervention, it is likely to have high income individuals participating in more activities which contribute to human capital development since early education (e.g. private kindergarten, language institutes and cultural activities). This reasoning can be supported with some cognitive tests: Typically, early age children from higher income families know more words/expressions than lower income groups.

As long as we believe that the main reason of educational gap is not genetic (ability/talent), educational policies should start since the first years of educations in order to avoid high and persistent gaps in human capital/capacities of students across income/society groups. In my view, these policies could be mandatory kindergarten education for all students, subsiding or supplying second language education in early education and other activities which develop personal skills (musical, sports, etc). Providing meals at school can also be a convenient policy if there is evidence that some children do not have the appropriate nutrition quality which will decrease the capacities acquired with schooling.

Governments are implementing policies to increase efficiency and equality in the educational system as the one’s described above but there is room for several improvements in the educational expenditure composition.

Guilherme Rodrigues 541


[1] Data from DfES age participation Index

[2] The top three social classes are professional, managerial, skilled non-manual. The bottom three social classes are unskilled non-manual, skilled manual, and unskilled manual. Data between 1960 and the last decade.

[3]  Carneiro, Pedro Manuel and Heckman, James J., Human Capital Policy (July 2003). IZA Discussion Paper No.821.

[4] Buly A Cardak & Chris Ryan, 2007. “Participation in Higher Education: Equity and Access: Are Equity-based Scholarships an Answer?, “Working Papers 2007.03, School of Economics, La Trobe University””

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Author: studentnovasbe

Master student in Nova Sbe

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