Evolution of Earnings and Rates of Returns to Education in Mexico

Education attainment levels increased dramatically for Mexico's labor force in the 1980s and early 1990s. In parallel, the country experienced a pronounced increase in earnings inequality from 1984-94, reflected in a higher dispersion of wages and an absolute decline in the real incomes of less educated, poorer Mexicans. This increased wage dispersion presents policymakers with a tradeoff between efficiency considerations (favoring increased spending on higher education) and equity considerations (favoring a more equal distribution of per student spending) in the allocation of fiscal resources to education. The author concludes that the best way to deal with this equity-efficiency tradeoff is to encourage greater private participation in higher education. His main findings are that: a) The accumulation of human capital during 1984-94, as proxied by education attainment, was accompanied by a more equal distribution of education attainment levels over that period and, thus, exerted an equalizing effect on the distribution of incomes. The increased income inequality observed over that period appears to be caused by an increased rate of skill-based technological change, whose transmission to Mexico and other developing countries may have been facilitated by the increased openness of their economies. b) The greater dispersion of wager observed in Mexico during the past decade raised the rates of return on investing in higher education, reversing the traditional pattern where primary education exhibits the highest rates of return. c) The social rates of return across levels of schooling were more uniform in 1994 than in 1984, suggesting a more efficient assignment of education spending. At the same time, the distribution of spending on education became more egalitarian, as per student spending in higher education declined markedly compared with per student spending at the primary level. This surprising coincidence in the pattern of spending on education was only possible because Mexico started out with a very distorted resource allocation in education that was both highly inequitable and inefficient. As Mexico's policymakers are on the way to correcting these distortions, the opportunities for avoiding the equity-efficiency tradeoff within Mexico's centralized education framework will become progressively exhausted. d) There is little reason to expect the pace of technological change, which appears mainly responsible for raising wage dispersion and the relative returns on higher education, to abate. Efficiency considerations dictate that Mexico should respond by devoting more resources to higher education. However, the federal budget, which traditionally has financed the lion's share of higher education costs in Mexico, is unable to accommodate additional spending on higher education, while spending cuts elsewhere in the education sector are bound to raise serious equity questions. Thus, to avoid falling behind in terms of human capital accumulation, greater private sector participation is necessary, at least, in terms of cost recovery from the main beneficiaries of higher education.

Inequality trends in Sweden 1978–2004

Chapter 4 - The Growth in Male Earnings Inequality, 1973–1988: The Role of Earnings Capacity and Utilization

Economic Reform, Education Expansion, and Earnings Inequality for Urban Males in China, 1988-2007

Economic reform, education expansion, and earnings inequality for urban males in China, 1988–2009

Notwithstanding the progress that has been made over the past decade, the challenges currently facing the Mexican education system must be tackled without delay. A preliminary step to developing appropriate strategies to compensate for the uneven results obtained by students as a result of socioeconomic and cultural factors was to analyze the relationship between the funding of education and equity in Mexico, as well as discern new challenges to be faced in this area in order to eliminate social inequialities and improve the quality of education. We collected information via participant observation and documentary analysis, using materials such as UNESCO’s Second Comparative and Explanatory Regional Study, and the Instituto Nacional para la Evaluación de la Educación de México [National Institute for the Evaluation of Education in Mexico] in order to further our knowledge of this complex area of study. The results we obtained confirm that formal education in Mexico in no way guarantees effective equality of opportunity, nor does it reduce the social inequalities stemming from socioeconomic context and family background; on the contrary it reproduces, multiplies and even intensifies the differences that exist before the pupil has even entered the school system.

Changes in the structure of earnings during the Polish transition

That the relative demand for labor in the upper segment of the skill distribution has been shifting is a widely accepted ‘stylized fact’ in the literature on the increase in earnings inequality that has occurred since the late 1970s. Explanations of the causes of the relative demand shifts range from effects of increased integration of the world economy to skill-based technological change (reflecting, in part, the computerization of production processes). However, relative demand for skilled labor has been increasing fairly steadily since 1940, a fact having implications about the causes of both the demand shifts and recent increases in inequality.

We analyze the variance of log earnings within labor force cohorts of U.S. males with particular attention to the influence of labor force growth rates. Estimates with data from the 1968-79 current population surveys reveal increases in earnings inequality within labor force cohorts even after we control for the level of education, experience, and unemployment. A model of human capital investment is used to analyze differences among cohorts in the life-cycle profile of the variance of log earnings. It is shown that a pattern of sharply increasing and then declining labor force growth rates will tend to raise the return on human capital investment and thereby increase the variance of postschooling investment and log earnings early in the life cycle. This positive effect on relative earnings inequality should decline with experience and possibly become negative. Because of the post-World War II baby boom and baby bust, recent labor force entrants have faced just such a pattern of actual and projected labor force growth rates during their work life. An extended model is tested and generally confirmed using estimates and forecasts of labor force growth rates for the period 1920-2000.

Introduction and Background It is well known that individuals will desire to migrate to the location where returns to their abilities are the highest, other things equal. An important theoretical factor in determining these returns is the relative distribution of earnings in the source and host countries. If the earnings variance in the country of origin is less than that in the country of destination (assuming that the correlation in earnings across the two countries is positive and sizeable), we expect those from the upper tail of the distribution (that is, those with the highest skills) to migrate, since incomes will be maximized by doing so. Conversely, if the source country has a wider distribution of income than the host country, we would expect those from the lower tail of the distribution (that is, those with the lowest skills) to migrate, since they too would have higher earnings in the host country. the context of a bilateral immigration relationship, this would then imply that the country with the wider distribution of income would have high-quality immigrants wishing to enter, while the country with the more egalitarian distribution would have lower quality immigrant flows. Borjas (1988, 1993) has addressed immigration between Canada and the United States within the context of such a wealth-maximization model. He found that Canadians tend to perform well in the United States (in terms of earnings) relative to native Americans, while Americans tend to perform relatively poorly in Canada, even when controlling for different human capital characteristics. (1) He hypothesized the less equal distribution of income in the United States relative to Canada could cause this outcome and that individuals seeking to maximize wealth will self-select into the appropriate economy. Thus, insofar as people are free to move between the two countries, Canadians of high ability will choose to migrate to the United States where returns to their abilities are higher, while Americans of more limited ability will seek to enter Canada, since they will earn higher wages than they could in the United States. This result is somewhat puzzling given that Canada has, since the 1960s, explicitly followed an immigration policy that has sought to enhance the quality of immigrants (from all source countries) by screening out those who may have a limited ability to assimilate into the Canadian labor market. Borjas, however, argues that the screening process in Canada can only evaluate immigrants on the basis of observable characteristics, not unobservable characteristics, even though the latter are also important in determining earnings. (2) He asserts that: In the end, regardless of what immigration policy says, only those persons who gain from immigration do so. Governments legislate, but it is people who immigrate (Borjas 1990, 216). It has also been well established that there has been an increase in earnings inequality in the United States in the 1980s. The review article by Levy and Murnane (1992) shows that earnings inequality increased in the United States for both males and females in the 1980s. Furthermore, this trend towards increased inequality has favored high-skilled workers. Canada, earnings inequality also increased over the same period (Morissette, Myles, and Picot 1993; Morissette and Berube 1996; Burbridge, Magee, and Robb 1997). comparing the changes in the earnings distribution in the two countries, however, the literature suggests that this increase in earnings dispersion has been much greater in the United States (Blackburn and Bloom 1993; Gottschalk and Smeeding 1997; Richardson 1997). (3) This change in the relative earnings distribution should be manifest in the form of varying immigrant quality on either side of the border. this context, the implication of the wealth-maximization model is that the United States should attract Canadians with greater skills (and hence higher earnings) than natives, and that Americans with lower skills (and hence lower earnings) compared to natives would continue to migrate to Canada. …

PART I: INEQUALITY CHANGES AND THE SURFACING OF NEW POLICY APPROACHES 1. Recent Distributive Changes in Latin America: An Overview 2. Inequality Trends and their Determinants: Latin America over 1990-2010 3. The Politics of Inequality and Redistribution in Latin America's Post-Adjustment Era PART II: RECENT INEQUALITY CHANGES IN SIX REPRESENTATIVE LATIN AMERICAN COUNTRIES 4. Redistribution without Structural Change in Ecuador: Rising and Falling Income Inequality in the 1990s and 2000s 5. Policy Regimes, Inequality, Poverty and Growth: The Chilean Experience, 1973-2010 6. Uruguay's Income Inequality and Political Regimes over 1981-2010 7. The Rise and Fall of Income Inequality in Mexico, 1989-2010 8. Social Policies or Private Solidarity? The Equalizing Role of Migration and Remittances in El Salvador 9. The Dynamics of Inequality Change in a Highly Dualistic Economy PART III: MAIN POLICY CHANGES AND INEQUALITY DURING THE LAST DECADE 10. Macroeconomic Policies, Growth, Employment, Poverty, and Inequality in Latin America 11. Trade and Income Distribution in Latin America: Is There Anything New to Say? 12. Changes in Labour Market Conditions and Policies and their Impact on Wage Inequality during the Last Decade 13. What Can Latin America Learn from China's Labour Market Reforms? 14. Tax Policy and Income Distribution during the Last Decade 15. Inequality in Education: Evidence for Latin America 16. On the Distributional Implications of Social Protection Reforms in Latin America

We examine the increasing variance of earnings of white men over the 1970s and 1980s by focusing on changes in the covariance structure of earnings. Using data from the Michigan PSID from 1969-1987, we find that about half of the increase has arisen from an increase in the variance of the permanent component of earnings and half from an increase in the variance of the transitory component, where the transitory component is composed of serially correlated shocks that die out within three years. We thus find that increases in the variability of earnings are of equal importance to increases in the dispersion of permanent earnings in explaining recent increases in earnings inequality.

Research shows that education has played a crucial role in raising levels of earnings and that returns to education in Mexico have increased, particularly in higher education and in the upper tail of the conditional earnings distribution. The authors examine patterns of public spending on education in the face of further increases in earnings inequality. They analyze the incidence of benefits using two sets of data: data on unit costs per student by state and by education level, and data from surveys on household income and spending. Among their findings: Nationally, the poorest income groups get most of the national and state subsidy for primary education. At higher education levels the poor get progressively smaller subsidies. For all Mexico, government spending on primary education is very progressive. In lower secondary education it is neutral. And in upper secondary education it benefits mainly the middle and upper classes. Tertiary education is strongly regressive, benefiting mainly the richest deciles and mainly in urban areas. But those government patterns vary by region. In the central region average total spending is more uniformly distributed than the national pattern. In the northern region the subsidy is progressive. Primary education is neutral and higher levels of instruction are moderately regressive. In the central region primary schooling is very progressive, while lower secondary schooling is almost neutral. Upper secondary and tertiary instruction strongly benefit the richest income deciles. In the southern region basic (primary and lower secondary) education is very progressive, upper secondary education is neutral, and tertiary education is highly regressive. In Mexico City all levels of education except primary are strongly regressive. The authors show that public spending at the tertiary level is more regressive than household spending. So much of public spending on tertiary education favors non-poor families in urban areas that to reallocate the spending so that poor students have a chance to participate would require developing credit markets for higher education. The government's role should be to help overcome market failures in the financial sector, which limit the availability of long-term financing for higher education. These failures can be corrected through student loan programs or means-tested financial aid and scholarship programs. Such programs are rarely devoid of subsidy but are preferable to the direct, cost-free provision of services because the subsidy is targeted more closely to the source of market failure.

The chapter analyzes the vicious circle of economic and political inequality in Mexico. It presents a critique of the view that education can be an equalizer given its economic value, and argues that the reduction of inequality in Mexico is not only about having a better-educated workforce, but also about enhancing the political competence of its citizens. Considering that redistributive policies beyond education are more likely to reverse inequality, this means educating citizens that are able to influence the arena in which such policies need to be made despite prevailing political inequalities. To this end, the chapter advances three main proposals for citizenship education in Mexico: (1) teaching and learning about inequality, (2) recognizing and developing students' politicity, and (3) educating for effectiveness in political participation. These recommendations are the result of examining the gap between current citizenship education in Mexico and the citizens demanded by the existing context of inequality.

Changes in the Distribution of Long-Run Earnings and Retirement Incomes - Have Recent Cohorts Fallen Behind?