Exposure to Inequality, Human Capital Investment, and Labor Market Outcomes

We estimate the effects of exposure to income and wealth inequality during adolescence on long-term educational and labor market outcomes. Using detailed Swedish register data covering all students completing compulsory education between 1989 and 2013, we construct measures of inequality among students’ school-cohort peers and exploit variation between cohorts within schools to identify plausibly causal effects. We find no evidence that exposure to inequality affects GPA, high school graduation, university enrollment, university completion, or income up to age 35. These null results are precisely estimated and robust to alternative measures of inequality, sample definitions, and specifications. Moreover, we find no evidence of systematic heterogeneity by socioeconomic background. Taken together, these findings provide reassurance that school integration policies mixing students from different socioeconomic backgrounds do not carry hidden long-run costs stemming from exposure to inequality. More broadly, they challenge the view that school-based exposure to peer inequality during adolescence is a causal driver of human capital accumulation or later-life mobility.