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Educational aid policy and inequality: the case for merit- and need-based aid

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  • Aboozar Hadavand

Abstract

Using model in which the assignment of skills to tasks is determined by relative productivities and are endogenously determined by ability, access to higher education, and technology, I find the effect of different educational aid schemes (including need-based aid, merit-based aid, or a combination of the two) on the distribution of wages. I calibrate the model using NLSY97 data and find that in general, determining what policy minimizes inequality depends on the elasticities of demand for higher education of each ability/human capital group, the labor shares of each group, and the share of resources devoted to each group. Given the model parameters, both merit-based and need-based policies are preferred to a policy based on both merit and need. Moreover, under the model parameters, a need-based policy reduces wage inequality more than a merit-based policy.

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  • Aboozar Hadavand, 2018. "Educational aid policy and inequality: the case for merit- and need-based aid," Review of Social Economy, Taylor & Francis Journals, vol. 76(4), pages 535-562, October.
    • Handle: RePEc:taf:rsocec:v:76:y:2018:i:4:p:535-562
    DOI: 10.1080/00346764.2018.1525760
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