Moral Equity, not Investments in Human Capital: Why Rewards to Education are Legitimate

• In Event: 212 - Section on Inequality, Poverty and Mobility Roundtables (one-hour)
  In Refereed Roundtable: Table 06. The View from the Top: Attitudes on Inequality Among the Wealthy or Highly Educated

Abstract

Is it morally legitimate to pay well-educated people more than people with little education? Since education is the the largest source of income inequality, this is an important question. Equity theory holds that rewards should be in proportion to contributions, hence is right to reward differences in performance arising from education and training. Human capital arguments – almost universally accepted in economics – suggest education is only rewarded to compensate for the financial cost of acquiring it: human and material capital are analogous. Economic forces ensure that rewards are no more than is warranted by education's contribution, so in the end coming to the same conclusions as equity theory. But when education's costs are not paid by the worker, there no legitimate reward on human capital grounds. Here the theories can be distinguished. This paper presents evidence on the matter. Data from a large representative national sample in Australia reveal that the public generally favor large rewards for education, regardless of whether it required finincial investment. Approximately 80% embrace views consistent with equity theory and only 10% ones consistent with human capital. This suggests that rewards to education may not be a matter of market forces but of moral principles.

Authors

• Jonathan Kelley, University of Nevada-Reno

• Mariah Debra Evans, University of Nevada-Reno