Education and earnings inequality in Mexico
Education attainment levels increased
            dramatically for Mexico's labor force in the 1980s and
            early 1990s.  In parallel, the country experienced a
            pronounced increase in earnings inequality from 1984-94,
            reflected in a higher dispersion of wages and an absolute
            decline in the real incomes of less educated, poorer
            Mexicans.  This increased wage dispersion presents
            policymakers with a tradeoff between efficiency
            considerations (favoring increased spending on higher
            education) and equity considerations (favoring a more equal
            distribution of per student spending) in the allocation of
            fiscal resources to education.  The author concludes that
            the best way to deal with this equity-efficiency tradeoff is
            to encourage greater private participation in higher
            education.  His main findings are that: a) The accumulation
            of human capital during 1984-94, as proxied by education
            attainment, was accompanied by a more equal distribution of
            education attainment levels over that period and, thus,
            exerted an equalizing effect on the distribution of incomes.
            The increased income inequality observed over that period
            appears to be caused by an increased rate of skill-based
            technological change, whose transmission to Mexico and other
            developing countries may have been facilitated by the
            increased openness of their economies.   b) The greater
            dispersion of wager observed in Mexico during the past
            decade raised the rates of return on investing in higher
            education, reversing the traditional pattern where primary
            education exhibits the highest rates of return.  c) The
            social rates of return across levels of schooling were more
            uniform in 1994 than in 1984, suggesting a more efficient
            assignment of education spending.  At the same time, the
            distribution of spending on education became more
            egalitarian, as per student spending in higher education
            declined markedly compared with per student spending at the
            primary level.  This surprising coincidence in the pattern
            of spending on education was only possible because Mexico
            started out with a very distorted resource allocation in
            education that was both highly inequitable and inefficient.
            As Mexico's policymakers are on the way to correcting
            these distortions, the opportunities for avoiding the
            equity-efficiency tradeoff within Mexico's centralized
            education framework will become progressively exhausted.  d)
            There is little reason to expect the pace of technological
            change, which appears mainly responsible for raising wage
            dispersion and the relative returns on higher education, to
            abate.  Efficiency considerations dictate that Mexico should
            respond by devoting more resources to higher education.
            However, the federal budget, which traditionally has
            financed the lion's share of higher education costs in
            Mexico, is unable to accommodate additional spending on
            higher education, while spending cuts elsewhere in the
            education sector are bound to raise serious equity
            questions.  Thus, to avoid falling behind in terms of human
            capital accumulation, greater private sector participation
            is necessary, at least, in terms of cost recovery from the
            main beneficiaries of higher education.