Educational effort is key to lowering inequality

THOMAS Piketty has provoked much discussion on the causes of inequality as well as possible solutions. Piketty argues that growing income inequality is caused by unequal wealth distribution.

The rich, he says, accumulate their wealth from generation to generation. Piketty further claims that over time returns on financial capital have increased more rapidly than the rate of economic growth.

The incomes generated by the wealth of the rich therefore grow faster than the wage incomes of the poor, so inequality widens.

This claim, that the return on capital always surpasses economic growth, has been widely challenged. It is also unclear whether income earned on wealth (as dividends and interest) is actually a significant driver of income inequality.

In SA, income derived from wealth is not a material contributor to the very large differences in household income. Most of the difference is caused by wide wage gaps. The poor are unemployed or have lowpaying jobs. The rich have high-paying jobs. Access to jobs, especially high-paying jobs, is closely tied to educational attainment. Unemployment is lower for people with a matric than for those without.

For those with a tertiary qualification, especially a university degree, the chances of being employed increase significantly.

Inequality in SA is, therefore, perpetuated across generations, not because of the income generated by wealth, but rather because the children of the wealthy are much more likely to be well-educated.

A recent study of the scholastic performance of 15-year-olds in 34 Organisation for Economic Co-operation and Development countries confirms the relationship between poverty and educational performance.

It reveals substantial differences in education performance between and within countries. Differences between countries are not necessarily related to national incomes. The best performer, South Korea, has a far better education performance than much wealthier countries such as the US and Germany. Wealthy countries such as the US, Sweden and Norway perform relatively poorly.

The study finds that there are very wide performance differences within countries related to socioeconomic circumstances.

On average, 40% of children from disadvantaged backgrounds in the organisation perform below a baseline measurement of education proficiency.

Less than 10% of children from advantaged backgrounds fall below this baseline. Only 5% of children from disadvantaged backgrounds are high performers, while 25% from advantaged backgrounds are high performers. This means children from disadvantaged backgrounds are four times more likely to attain low education competencies. This reduces their chances of finding employment and restricts their employment choices to lower-skilled, lowerpaying occupations.

Children from advantaged backgrounds are five times more likely to acquire the high-level education and skills required for high-paying jobs.

The effect of socioeconomic background on education performance differs greatly between countries. In Iceland, Korea and Norway, the effect is much lower than the organisation average.

In Denmark, France, Hungary and Portugal the effect is much greater than the organisation average. In other words, while the education performance of children is often closely related to their socioeconomic background, this need not be the case.

Moreover, relatively poor countries such as Turkey, Mexico and Brazil demonstrate it is possible to make substantial progress in improving weak education performance in a short period.

There are important lessons for SA’s efforts to reduce inequality.

The first is that education performance is key to reducing inequality. Increasing the overall level of national education performance (for example improving the matric pass rate) is important, but so too is reducing the performance gap between rich and poor households.

International experience shows how both these goals can be achieved. Some of the lessons are quite simple. For example, the organisation finds that students who spend six hours a week doing homework are 70% less likely to be low performers than those who do none. Pupil and teacher selfbelief, absenteeism and teacher support also matter greatly.

Implementing these lessons in SA is critical, otherwise our very high inequality will continue to perpetuate itself.