Sources of Wage Inequality: Institutional Design of Education vs. Family Capital

1
Sources of Wage Inequality Institutional Design
of Education vs. Family Capital

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2
Contents

• Introduction
• Theory Hypotheses
• Empirical Results
• Concluding Remarks

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Introduction

• Two tracks of studies on social inequality (or
  exclusive social benefits)

Meritocracy Elite networks based on
institutional arrangement of education (IAoE)
Social inequality Exclusive social benefits
?
Family (inherited) background Family
influences as Family capital (FC)
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Introduction

• It has been not clear on interaction causal
  relationship between institutional arrangement of
  education (IAoE) and family capital (FC)
• IAoEFC ? wage inequality?
• FC limits effectiveness of IAoE and then affects
  wage inequality?

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Theory HypothesesIAoE and exclusiveness

• Meritocracy / Elite networks based on IAE

• Social mobility ?
• Social inequality ?or?
• Deterring Influences of Family Capital (FC)

Meritocracy
Elite Networks
Institutional Arrangement of Education (IAoE)
Personal performance
Hypothesis 1a Meritocracy will be positively
related to individual wage premium
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Theory HypothesesFamily capital and
exclusiveness

• Intergenerational transfer of Family Capital (FC)
  
• such as
• Parental influences
• Relatives social status
• Residential area

• Social mobility ?
• Social inequality ?

• Hypotheses 2a 2b Family capital could be
  positively related to individual wage.

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Theory HypothesesInteractions between IAoE
and FC
IAoE IAoE FC
Social inequality
FC
Hypothesis 3a IAoE and FC have different
effects on an individuals wage inequality
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Theory HypothesesCausal relationship b/w IAE
and FC

• The causal relationship b/w IAE and FC
• Finnish study
• German study
• Korean study increasing influence of family
  background on the opportunity of education
• Widening participation in England

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Theory HypothesesCausal relationship b/w IAE
and FC
Individuals wage premium
Family Capital (FC)
Institutional Arrangement of Education (IAoE)
( Fathers education )
( Elite school graduation )
Hypothesis 3b FC affects IAoE, and the
latter changes an individuals wage
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Empirical resultsvariables

• Dependent variable
• log(individuals hourly wage)
• To measure wage premium effect
• Independent variables
• IAoE in Korea top-10 elite school graduation
• FC in Korea fathers education of
  university-level and relatives social status
• Control variables
• Age, Gender, Job exp, Job exp squared, Cognitive
  ability(scores of CSAT), Education years, Year
  dummies

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Empirical resultsdata and methods

• Dataset 1 Korean Labor and Income Panel Study
  (KLIPS) data
• Individuals biological, educational,
  labor-related, FC-related information (20022008)
• Dataset 2 Database of Jin-Hak-Sa
• To measure the rankings of universities in Korea
• Contains average CSAT scores of most four-year
  universities (19962008)

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Empirical resultsdata methods

• An unbalanced panel data by combining two
  datasets
• 1362 observations over 7 surveyed years
• 174 210 individuals in each year

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Empirical resultsdata methods

• Statistical methods
• Pooled regression approach to test
• Hypotheses 1, 2a, 2b
• Investigating the general effects of IAE and FC
  on wage inequality
• Two cases of two-stage least squares approach
• Case 1 To find the relative influences of
  fathers education and elite school graduation on
  wage inequality (Hypothesis 3a)
• Fathers education used as instrumental
  variables, to extract pure effects of elite
  school graduation

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Empirical resultsdata methods

• Case 2 To find the causal relationship between
  Fathers education and Elite school graduation
  (Hypothesis 3b) toward wage inequality
• (1) Fathers education used as Endogenous
  regressor in the first stage and then Elite
  school graduation used as dependent variable
• (2) Elite school graduation used as Endogenous
  regressor in the first stage and then Fathers
  education used as dependent variable
• Both (1) and (2) use Age as an instrumental
  variable

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Empirical results Statistical results

• Table 2 Testing Hypotheses 1a, 2a, and 2b
• Evaluate the effects of IAE and FC on wage
  inequality
• From model 2, observed positive relation b/w IAE
  and wage inequality
• 23.8 of wage premium for elite school graduation
  against two-year college graduation
• From models 3 and 5, found positive relation b/w
  FC and wage inequality
• 10.7 of wage premium according to fathers
  university-level education

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Empirical resultsStatistical results

• Table 2 (cont.)
• From model 4 to test interaction b/w fathers
  education (FC) and elite school graduation(IAoE)
• Estimate -0.375 significant but negative
• Counteracting outcome from the other sides of FC
  and IAoE
• IAoE moderates FC on wage inequality, making FC
  less conspicuous

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Empirical resultsStatistical results

• Table 3 Investigating causal relationship
  between IAoE and FC on wage inequality
• 1st stage regression
• Elite school graduation ? Fathers education
• 2nd stage regression
• Wage premium ? Elite school graduation
• FC ? IAoE ? Wage inequality
• In benchmark model, IAoE is less significant than
  that of FC (FC is relatively more important than
  IAoE)

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Empirical results Statistical results

• Table 4 Two-stage regression
• Examine endogeneity b/w IAE and FC
• Fathers education ? Elite school graduation (in
  the left two column), not vice versa (in the
  right two column)
• Integrated outcomes of two-stage regression in
  Tables 3 4 supports Hypothesis 3a (i.e., FC ?
  IAE ? Wage premium)

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Discussion

• The effects of institutional arrangement of
  education (IAoE) and family capital (FC) on
  social inequality or exclusive social benefits
• IAoE side elite networks, education system,
• FC side parental education, family influences,
• We find both IAoE and FC affect on individuals
  wage level
• IAE elite school graduation
• FC fathers education or relatives social
  status
• The interaction of IAE and FC yields a negative
  (-) outcomes on ones wage inequality
• In fact, IAE and FC counteract the effect of the
  other sides

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Discussion

• Elite school network in terms of IAoE
• Negative view worse social inequality as a
  result of exclusive rent-seeking
• Positive view better intergenerational mobility
  lessen social inequality
• For productive elite school system,
• Educational policy to broaden opportunities of
  education across cohorts of household income and
  wealth
• This could moderate the unproductive effects of
  FC on intergenerational social inequality
• Reference to the British Case widening
  participation
• This attempts to widen access to higher education
  by increasing number of underrepresented group
  from lower income families

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Concluding remarks

• The relative influences of FC (fathers
  education) and IAE (elite school graduation)
• In Korea,
• parental education (as FC) is the most important
  factor for intergenerational transfer of income
  (wealth)
• A society with meritocracy based on education

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Concluding remarks

• Supports for social policies that
• breaks the cycles of disadvantages across
  generations
• Social investment in early children in low income
  households
• Child well-being is a key determinant of how much
  someone will earn in a society with meritocracy
  based on IAoE
• Limitations
• A single country, small sample
• A cross-country analysis with a wider time window
  is desirable
• Need more micro-level data on intergenerational
  income, schooling, labor market practices, and so
  on.