Chile’s School System Feeds Income Inequality

Sergio Urzúa is an Assistant Professor in the Department of Economics at University of Maryland.

In the 1980s, Chile's educational system underwent a major overhaul that included decentralizing administrative powers and the creation of a nationwide voucher system to promote competition. The result was three types of schools: (i) public (funded by student subsidy, administered by municipality), (ii) private voucher (funded by student subsidy and in some cases with a co-payment, administered by private sector), and (iii) private-fee-paying (funded and administered by private sector).

How is this set-up working in an economy that has grown rapidly but continues to have a high level of income inequality? A new study by Dante Contreras (University of Chile), Jorge Rodríguez (University of Chicago), and Sergio Urzúa (University of Maryland) – which for the first time links data on individual’s schooling achievement and adult labor market performance — suggests that the three-tiered school system, along with two major educational reforms introduced in 1996 to improve the quality of education, aren't helping to reduce income equality.

Urzúa tells the JKP that over time there's been a sharp shift in the public-private balance. Just 10 years ago, 53 percent of students attended public schools, 39 percent voucher schools, and 8 percent private schools. But now, more students are enrolling in voucher schools than public schools, drawn by the hopes of better educational outcomes and eventually better labor market outcomes. In fact, the study shows that attending a private-voucher school during high school instead of a public one is associated with an increase of 2 to 4 percent in adult earnings, while attending a private-fee-paying high school instead of a public one is associated with a 15 percent increase in earnings. He cautions that these findings underscore the need for beefing up the quality of public schools to reduce inequality, which will entail enabling them to better compete with the voucher schools.

This post was first published on the Jobs Knowledge Platform.