Inequality in Education: A Framework and Methodology

1
Inequality in EducationA Framework and
Methodology

• Dr. Yan Wang
• Senior Economist
• The World Bank
• ywang2_at_worldbank.org
• For TOT course on Poverty Analysis
• Beijing, Nov 1-8, 2005

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Table of Content

• Introduction
• A Simple Framework inequality matters
• Why inequality matters
• Assets, distribution and growth
• Measuring inequality in education 3 indicators
• The case of India and Korea
• Current status and trends in inequality of
  education
• The case of China
• Poverty Reduction has slowed and inequality on
  the rise
• Removing urban-biased policies distribution of
  education
• Summary and implications

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I. Equity and Development

• By equity we mean that individuals should have
  equal opportunities to pursue a life of their
  choosing and be spared from extreme deprivation
  in outcomes. WB (WDR 2005/6, p.2)
• Equity is complementary to the pursuit of long
  term prosperity.
• Institutions and policies that promote a level
  playing field are good for growth and welfare.

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Equity of What? Why do we care ?

• Sen (1980) individuals levels of functions, such
  as literacy and nutrition as attributes to be
  equalized
• Others stress the opportunities people face as
  attributes to be equalized
• Yet others focus on the amount of resources
• Most agree that Inequalities of opportunities due
  to factors beyond ones control, such as race,
  caste, gender, location, would be unfair and
  unjust
• Whereas, distribution of income is a result /
  outcome, and should not be aimed to be equalized

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II. Why inequality in opportunity matters

• On the welfare ground, education and good health
  improve peoples capability to shape their lives
  strengthening their functionings and
  contributing to well being.
• Yet, inequality starts at birth reflected in
  vast differences in IMR, nutrition levels
• Education gaps between gender, race and rich/poor
  are staggering
• These inequalities link closely to poverty and
  deprivation of minimum fulfillment of basic
  capacities
• If you care about poverty and deprivation, you
  must care about inequality of opportunities

6
The educational gaps between the poor and rich
are staggering
7
Why distribution matters? (continued)

• On the efficiency ground, aggregate production
  and growth are affected by the level, as well as
  the distribution of capital, land and other
  assets, including human capital. Why?
• Since education is only partially tradable, its
  marginal product not equalized, and hence
  aggregate production function also depends on its
  distribution.
• Similar to land --- if the distribution of land
  matters, so does the distribution of human
  capital

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A Framework of balanced growth

• A country needs at least 3 types of capital for
  income growth and welfare physical, human and
  natural capital
• Due to market failures in developing countries,
  resources may not flow to where returns are the
  highest mis-allocation of investment
• Investment in H raised the productivity of other
  assets, but currently there is an
  under-investment in H
• Investment in Natural capital (R) and protection
  of the environment contributed to growth as well
  as welfare, but currently there is an
  overexploitation of natural capital
• Openness to trade and foreign investment would
  raise the productivity of K, and H
• Improvement of Governance would raise the
  productivity of all three K, H, and R, and
  promote growth and poverty reduction

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More formally, a social welfare function
We define an additive and separable welfare
function, U, for a society that consists of N
individuals

By strict concavity of u() and v(), we have
that u? lt 0 and v?() lt 0.
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This implies ..

• Social welfare increases as average c and h
  increase and decreases as the dispersion of c
  and h widen.
• So does economic growth. Why
• There may be an under-investment in the poors
  human capital, due to unequal opportunities, and
  both supply and demand side factors mothers may
  have less incentives to send children to school
  due to biased wages/ socio-economic inequalities
• There may be a mis-match of investment and
  ability. More invested in less able students, or
  less invested in more or equally able students.

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III. Measuring Inequality in Education

• Income Gini
• Education Gini
• Education Theil index
• Generalized Entropy (GE) used in WDR06
• The case of India and Korea
• The status and trend in inequality of education
• The case of China

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Income Gini and Lorenz Curve
The direct method states that the income Gini is
defined as the ratio to the mean of half of the
average over all pairs of the absolute deviations
between all possible pairs of people (Deaton
1997).
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Lorenz Curve and Gini Coefficient
14
Education Gini coefficient and Theil Index
Theil index is derived from the notion of entropy
in information theory. For income inequality,
Theil is the mean product of income and its own
logarithm, as follows
15
Generalized Entropy (GE)
Generalized Entropy (GE) indexes provide an
alternative class of inequality measures for
income /consumption /education
The GE measures with parameters 0 and 1 become
two of Theils measures of inequality (Theil,
1967). (i) If c0, it gives more weight to the
lower tail, and GE becomes the mean log deviation
(ii) If c1, it gives equal weight across the
distribution. GE becomes Theil- T index as c1.
16
Education Gini India 1960-2000
Source Thomas, Wang and Fan 2001.
17
Education Gini Korea 1960-2000
Source Thomas, Wang and Fan 2001.
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V. Educational opportunities have been improving,
but the pace varies----- why? Gini Coefficients
of Education, 1960-90
Less equal
More equal
19
Inequality in education is still striking
under-investment in the poors human capital

• In some countries, the differences in educational
  attainment between the rich and the poor are
  staggering In India, this gap reached 10 grades
  
• Although progresses are made, in 2000, indias
  education gini was still high at 0.58, with a
  mean of 5.06 years. Its Lorenz curve indicates
  that 10 percent of population had obtained 32
  percent of the total accumulated years of
  schooling in the country (Thomas, Wang and Fan
  2001).

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The educational gaps between the poor and rich
are staggering
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A huge welfare loss due to .

• A distribution of education as skewed as that of
  India implies a huge social loss from the
  under-development and under-utilization of human
  capital
• Many studies, including ours, show there is a
  negative and significant correlation between the
  distribution of education and economic growth
  (Thomas, Wang and Fan 2001). Therefore, massive
  and quality investment in basic education is
  needed.
• Since the 1960s, Korea used 2/3 of its education
  spending in compulsory basic education. In the
  1990s, subsidies to primary students were 2 to 3
  times those for college students.

22
Average schooling and Education Gini
23
Average schooling and education Theil index
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VI China, poverty and Inequality

• Openness and reforms led to rapid growth and
  poverty reduction
• Poverty was reduced most rapidly in the early
  1980s, and has slowed since 1997 and inequality
  has risen
• Many reforms have benefited urban residents.
  Attention to San Nong (Ag, rural and farmers)
  issues in adequate.
• Some policies are regressive or inadequately
  pro-poor. See below

25
Poverty reduction was rapid but extremely uneven
Headcount index ()
60
50
2000 calorie poverty line
40
30
20
10
Official poverty line
0
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
Source Martin Ravallion and Shaohua Chen 2004
26
The poor benefited much less than the rich from
economic growth
Source Chen and Wang 2001
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Why? Education and Labor Markets Are Critical

• Trade reform Chinas growth development
  require massive movements of workers
• Many barriers to mobility between agriculture
  other sectors
• Poor education, lack of experience, inability to
  sell land use rights, formal barriers (eg hukou)
  all limit mobility
• Causes rural incomes to fall behind urban
• Hukou system less restrictive than previously,
  but still an important barrier

28
Poverty is flat after 2001, official data
Source NBS, Qiu Xiaohua, 2005
29
while inequality has risen sharply
Gini coefficient
45
40
National
35
30
Rural
25
Urban
20
15
10
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
Source Martin Ravallion and Shaohua Chen 2004
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VI. Inequality of education in China

• Before economic reforms in 1978, China had
  achieved a higher human development level than
  countries at similar income levels.
• There has been continued progress but regional
  disparities have widened. Why
• Public expenditure for education is inadequate,
  at 2.4-2.8 of GDP, and there is an urban bias
  in provision
• There is a underinvestment in primary education,
  and over-subsidization of tertiary education

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China Average education attainment has been
rising, inequality of opportunities improving
Source Yan Wang and Yudong Yao, 2001.
32
However, the dispersion in education has also
been rising inequality worsening
Source Yan Wang and Yudong Yao, 2001.
33
Reasons? Low level of public spending and
inadequate attention to the poor regions
Provincial average per student expenditures in
primary school (2002) 2002????????????
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Low level of public spending and inadequate
attention to the poor regions
Figure 5 Government spending on
education Figure 6 Private spending on education
in provinces, 1999 (RMB per capita) in
provinces, 1999 (RMB per capita)
Source Authors calculation based on China
Statistical Yearbook, 2000.
35
Education spending was regressive in China, or
inadequately pro-poor
Source Wang, 2002
36
Summary Level the playing field

• Policy is not aimed at equalizing outcomes, but
  at leveling the playing field providing equal
  opportunities
• Public actions focus on the distribution of
  assets, economic opportunities, voice of the poor
  and empowerment
• There are tradeoffs between equity and
  efficiency, but there are long term benefits of
  equal opportunities less conflict, greater
  trust, better institutions and better quality of
  growth
• Balance the need for maintaining individual
  incentives, and a cohesive / harmonious society.
  Massive investment in the poors human capital is
  key.

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Policy implications for China

• Reform the fiscal transfer systems so that it is
  sufficiently pro-poor
• Transform the functions of government to focus on
  social service provision
• Reduce urban bias exemption of tuition for
  primary schools should start in the poorest
  regions, not from cities
• The experience of stipend/ scholarship
  conditioned on attending school (Progresa and
  Oportunidades in Latin America) worth considering
  /learning from. See case studies from Shanghai
  conference
• Strengthen the Capacity for monitoring and
  evaluation of all poverty related programs.

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References

• Arauro, Caridad, Francisco Ferreira, and Norbert
  Schady. 2004. Is the World becoming More
  Unequal? Changes in the World Distribution of
  Schooling. Working paper, World Bank. Washington
  DC.
• Ahmed, Etisham, and Yan Wang, 1991. Inequality
  and Poverty in China Institutional Change and
  Public Policy 1978-1988 World Bank Economic
  Review 5(2) 231-57.
• Ravallion and Chen, 2004. Chinas Uneven
  Progress against Poverty. Processed.
• Sen, Amartya K. 1980. Equality of What? In S.
  McMurrin, ed., Tanner Lectures on Human Values,
  vol I. Cambridge, U.K. Cambridge University
  Press.
• Thomas, Vinod, Yan Wang, and Xibo Fan, 2001.
  Measuring Inequality in Education Gini index of
  education for 140 countries.
• Wang, Yan and Yudong Yao. 2003. Sources of
  Chinas Economic Growth 1952-1999 incorporating
  human capital accumulation, China Economic
  Review, 14(2003)32-52.
• World Bank. 2000. The Quality of Growth. In
  particular, Chapter 3 on Improving the
  distribution of opportunities.
• World Bank, 2003. Promoting Growth with Equity,
  Country Economic Memorandum.
• World Bank, 2005/6. Equity and Development, World
  Development Report 2006. The World Bank
  Publications.
• See http//www.worldbank.org/trade/China-WTO .