Equalizing Opportunity for Racial and Socioeconomic Groups in the United States Through Educational Finance Reform

We analyze the reallocations of educational expenditures required to equalize opportunities (taken to be wage income), according to the theory of Roemer (1998). Using the NLSYM data set, we find that implementing an equal-opportunity policy across men of different races, by using educational finance as the instrument, and ensuring that no race received less than the average observed nationally, would require spending nine times as much on black students, per capita, as on white students. Even the lower bound of bootstrapped confidence intervals for the policy estimates suggests large reallocations between races. The equal-opportunity policy across men from different socio-economic backgrounds that ignores race does almost nothing to equalize wages across races. For inter-racial allocations, we find evidence of a tradeoff between equity and total product, with reallocation lowering the wage bill by about 5%. In contrast, for reallocations based on parental education, equalization increases the wage bill by about 2% because the impact of school spending appears to be slightly higher for those with less highly educated parents.