The impact of social segregation on educational opportunities is most visible in the disparity between the schools of US inner cities and those of their surrounding suburbs. Its consequences for productivity and competitiveness may be seen in the contrasting skill distributions of workers in the US and Japan. In Discussion Paper No. 815, Research Fellow Roland Bénabou formally models the effects of economic stratification on income distribution, education and productivity growth. The local community's resources determine the tax base that funds public inputs into education, while the community's composition also affects the young's incentives for investment in education. At the economy-wide level, production brings together agents of different educational and income classes; tax revenues fund such national public goods as infrastructure, health insurance and defence, which contribute in turn to production and accumulation.

Bénabou compares the effects on overall growth and the welfare of individual family lines of stratifying income and educational classes into homogeneous communities and leaving them integrated. These depend on the two social structures' efficiencies in processing and reducing heterogeneity. While a segregated society performs better in aggregating disparate levels of human capital into production for any given distribution of skills and income, an integrated society converges faster to a more equal distribution and thus raises the productivity of future generations.

Integration initially hurts the better off but eventually raises all incomes if the intergenerational discount rate is sufficiently low; segregation increases inequality, which leads to a short-lived burst of growth and reduces long-run output or even long-run growth. Bénabou applies this framework to assess the cases for local or national funding of education, which are formally equivalent to special cases of stratification and integration; it may also illuminate discussion of issues such as residential desegregation, targeted social housing, immigration and busing.

Heterogeneity, Stratification and Growth
Roland Bénabou

Discussion Paper No. 815, August 1993 (IM)