Economics
Günther Rehme
Education Policies, Economic Growth and Wage Inequality
Volume 59 (2003) / Issue 4, pp. 479-503 (25)
It is assumed that education simultaneously affects growth and wage inequality. Human capital is taken as ''lumpy'', and education policy has a direct bearing on growth, the number of high-skilled people, and wages. It is shown that the optimal policy for the unskilled is Rawlsian and implies high after-tax returns on capital and high growth, whereas the skilled prefer an anti-Rawlsian policy with less education, lower growth, and more wage inequality. In contrast, a strictly utilitarian government chooses more education and less inequality than the Rawlsian. Thus, the unskilled prefer a more efficient and more equitable outcome than the skilled, and a strictly utilitarian policy may be more egalitarian than a Rawlsian policy.