Educational Aid Policy and Inequality: The Case for Merit- and Need-Based Aid
26 Pages Posted: 5 Dec 2017 Last revised: 9 Oct 2018
Date Written: July 3, 2017
Using model in which the assignment of skills to tasks is determined by relative productivities and are endougenously 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.
Keywords: Merit-Based Aid, Need-Based Aid; Inequality, Lorenz Curve, Higher Education
JEL Classification: I24, I22, J24
Suggested Citation: Suggested Citation