Executive Summary: “What Does Increased Economic Inequality Imply about the Future Level and Dispersion of Human Capital?” by Mary Campbell, Robert Haveman, Gary Sandefur, and Barbara Wolfe

Does the persistent increase in economic inequality among families and geographic areas have implications for the levels of educational attainment of children who have experienced this development? In this study, we consider this question using longitudinal data on about 1200 children from the Panel Study of Income Dynamics. We observe these children over a period of at least 20 years, and statistically estimate the relationship of the family, regional and neighborhood factors that exist while they are growing up to the educational choices that they make as young adults. We examine three educational attainments of these children: (1) completed years of schooling, (2) graduation from high school, and (3) college attendance. The four economic variables that we use to reflect observed changes in economic inequality are (1) family income (relative to needs), (2) family net worth (wealth), (3) a state measure of inequality (the Gini coefficient), and (4) a measure of the accessibility of higher education (the cost of tuition at state colleges).

Our estimates of the relationship between the inequality-increasing variables and years of schooling provide no particular surprises, in light of earlier research. First, we find that family income and wealth have positive and statistically significant links to attainment: children who grow up in families with higher income and greater wealth receive more schooling. Second, reviewing the geographic economic variables, we find that income inequality within the state (as measured by the Gini coefficient) has no significant ties to attainment. But higher state college tuition costs when children are in high school appear to deter schooling.

We use the coefficient estimates from our stylized model of children’s educational attainments together with adjusted values of the economic variables reflecting increased inequality to simulate the effects of increased economic inequality on youths’ schooling attainments. We measure the effects of increased economic inequality on the full distribution of educational attainments, and calculate changes in both the average level and the dispersion of educational attainment of the next generation of youths. In doing this, we systematically increase the level of inequality in our family and geographic variables, in line with the actual increase in each of these variables over the two decades from 1970 to 1990: we increase wealth inequality by 25 percent, family income/needs by 10 percent, and state tuition or fees by 10 percent. We find that increased family and geographic economic inequality has small positive effects on the average level of schooling of this generation, but also significantly increases the inequality of their schooling attainments. In particular we find that average years of schooling increase by less than 1 percent. Inequality, in contrast, increases substantially, by over 8 percent when all four measures of inequality are considered together. Moreover, a higher proportion of students do not complete high school or 11th grade.