The Costs of Meritocracy: An Agent-Based Model of Education, Inequality and Growth

The paper develops an agent-based model to study the complex interactions between access to education, inequality and economic growth. We simulate a “meritocratic” economy where households’ ability to obtain (costly) education affects their future productivity and, in turn, their labor compensation. Simulation results show that in an economy characterized by unequal access to education and where workers are rewarded according to their productivity, income and wealth inequality surges, social mobility falls and economic growth is gradually eroded. This shows the emerging costs of meritocracy. Conversely, an institutional framework characterized by broad educational access and less meritocratic compensation schemes can foster higher and more inclusive growth. This can also be achieved introducing a policy which subsidizes education for households at the lower end of the wealth distribution. These results underscore the critical role of institutional arrangements and pre-distributive policies in promoting both equity and long-term economic performance.