Education and the Growth-Equity Trade-Off
Chapter in NBER book Education, Skills, and Technical Change: Implications for Future US GDP Growth (2019), Charles R. Hulten and Valerie A. Ramey, editors (p. 293 - 312)
Simon Kuznets originally suggested that development and economic inequality were directly related, leading to a large subsequent literature but one that is largely devoid of policy considerations. This chapter marries that discussion with recent analyses of how both individual incomes and long run economic growth are related to human capital as measured by cognitive skills. There is now substantial evidence that cognitive skills resulting from both schools and other factors such as families and health explain substantial portions of individual income differences across countries and are key to understanding differences in national growth rates. In that light, major educational policies that increase the level of skills lead to economic development, and among those policies ones that reduce skill variation will tend also to reduce economic inequality. For example, early childhood policies aimed at disadvantaged youth will tend to be both growth enhancing and inequality reducing. Similarly, life long learning programs aimed at individuals with lower current skills will be inequality reducing. On the other hand, programs like increased vocational education will tend to leave individuals with depreciated skills when the economy grows rapidly and will thus imply increased inequality.
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