Educational Aid Policy and Inequality: The Case for Merit- and Need-Based Aid

24 Pages Posted: 5 Dec 2017  

Aboozar Hadavand

Johns Hopkins University, Bloomberg School of Public Health

Date Written: June 1, 2017

Abstract

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

Hadavand, Aboozar, Educational Aid Policy and Inequality: The Case for Merit- and Need-Based Aid (June 1, 2017). Available at SSRN: https://ssrn.com/abstract=3079711 or http://dx.doi.org/10.2139/ssrn.3079711

Aboozar Hadavand (Contact Author)

Johns Hopkins University, Bloomberg School of Public Health ( email )

615 North Wolfe Street
Baltimore, MD 21205
United States

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