Education’s Impact on Inequality: A Simulation Study in Colombia and Policy Alternatives

Abstract

In this paper, I estimate reductions to inequality (Gini) as a result from simulated increases in the levels of education in Colombian society. I rely on the 2019 national survey from the Colombian Government’s National Administrative Department of Statistics (Departamento Administrativo Nacional de Estadística, DANE) to estimate these reductions. To do so, I first calculate the returns from education on labor income and then use the fitted values as predictors for the simulations I run. I find that education has a limited effect on inequality. The few instances when the simulations show that education reduced inequality by more than 10% of its observed 2019 levels are the earlier simulations that give specialized tertiary education to the eligible population in 1977 and 1958. Even though this study is not a general equilibrium analysis, my results should be interpreted as an upper bound on what labor incomes could be once I simulate educational expansion in society. To contrast these results with an alternative policy, I look at the effect that reductions in class discrimination could have. I find that inequality reductions from this policy are similar to those of the most effective educational expansion simulations, although the effects from the class discrimination policy happen roughly four times faster. This paper contributes to a line of research that evaluates the efficiency of education as a tool to “level the playing field”. It contributes as well to Colombian economic literature by further showing that Colombia’s education system is inherently unequal, that factors beyond education (like class, precisely) have a great influence on labor income itself.