Canada Income Inequality And Education: Will Tuition Hikes Widen The Wage Gap?

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CANADA INCOME INEQUALITY EDUCATION
Dalhousie University student Grace McCaffrey: “I feel like a degree will give me access to a lot more opportunities, not necessarily to make more money but to enjoy my life." (Photo: Adam Scotti) | Adam Scotti

This feature was produced by Miles Kenyon and Sarah Mateshaytis, with Jane Caulfied, students in the School of Journalism at the University of King's College in Halifax, in partnership with The Huffington Post Canada.

Grace McCaffrey hopes her university degree will open doors. She doesn’t want to take the same path as her mother, who worked at McDonald’s after university when she was pregnant with her daughter.

“I don’t have to live ... that way and that by educating myself I can find a different route around that,” says McCaffrey.

While her mother eventually found work as a day-care director, McCaffrey wants to create a different lifestyle for herself — a desire that doesn’t come cheap.

At 21, McCaffrey is in her third year of a double major in sustainability and environmental sciences at Dalhousie University in Halifax. Like many Canadian university students, she finds financing her degree isn’t easy.

She expects to be around $30,000 in debt once she graduates, right around the Nova Scotia average of $31,000. In Canada, average tuition for undergraduate students is currently $5,366 a year.

While McCaffrey hopes it’s worth it, many potential university students in Canada don’t pursue post-secondary education because of the financial burden that comes along with it. According to a study from the Canada Millennium Scholarship Foundation, 30 per cent of respondents didn’t attend university because of financial barriers.

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It seems plausible, then, that breaking down financial barriers to education would decrease income inequality — the uneven distribution of income between the rich and the poor — by providing equal opportunities to higher education and therefore equal opportunities for financial success to those less fortunate.

But the connection between access to education and income equality is anything but clear. Evidence suggests that accessible education will only work to help reduce income inequality if it’s part of a broader societal effort to reduce the income gap.

'Fuzzy Relationship'

Some experts say that while students such as McCaffrey may be feeling the pinch now, they’re making a worthwhile investment for the future.

Studies have shown that “better-educated individuals tend to earn higher wages, experience shorter periods of unemployment and have access to more prestigious jobs.” As of 2006, nearly a third of 25- to 64-year-old university graduates in Canada were earning more than two times the national median income.

A study by the Organization for Economic Co-operation and Development states that university graduates actually save money for non-graduates. Graduates tend to be healthier and less reliant on social assistance programs and therefore decrease taxes by being less costly for the government.

Another study by the OECD concludes, “The trend to higher educational attainment has been one of the most important elements in counteracting the underlying increase in earnings inequality in the long run.”

It would only seem logical, then, that provinces would view providing accessible post-secondary education to Canadians such as McCaffrey as a smart investment.

But it’s not that simple.

The relationship between post-secondary education and income inequality is a complex one, according to Steven Pressman, a professor of economics at New Jersey’s Monmouth University who’s writing a book about the disappearance of the American middle class.

“It is a fuzzy relationship,” he says. “The two affect each other but affect each other in all sorts of funny ways.”

He says we can see a relationship between income equality and accessibility to education when we investigate three groupings of countries:

Nordic countries: income distributed very evenly, relative to the rest of the world; higher education cheap, sometimes free.

Continental Europe: relatively equal income distribution; relatively small costs for higher education.

Anglo-Saxon countries (Canada, United States, Britain): greater income inequality; extremely expensive higher education.

But he says the connection between the two factors gets complicated when we broaden our scope.

“Once we go out of this set of western industrialized countries, I don’t think that relationship [between income inequality and higher education] works so well,” he says. “Probably the two best counter examples I can come up with are Brazil and Japan.”

Brazil has a large gap of income inequality but offers free education. Conversely, Japan has a relatively narrow income inequality but has high tuition. If access to education were a primary factor in equalizing the distribution of wealth, one would expect Brazil to have a smaller income inequality gap and Japan to have a much larger one.

So it seems clear that income inequality and education are intertwined in a complex economic, political and societal tapestry.

NEXT PAGE: THE ROLE TAXES PLAY

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Taxation An Important Factor

Pressman suggests the cost of higher education has more of an effect than simply keeping some kids out of school. He believes that children from lower-income families know from a young age they can’t afford college and this in turn discourages them from applying themselves to studies in elementary and high school.

“Those expectations they have of never being able to afford college… actually affect whether they’re going to wind up going to college or not,” he says.

According to Pressman, taxes play a meaningful role in deciding who gets a higher education. He says Nordic countries have high tax rates, especially for the wealthy, which give the government the money to fully fund university education.

At the other end of the spectrum is the United States, which Pressman says has a tax structure that furthers income inequality by benefiting the wealthy more than it benefits those with modest incomes.

“The whole system is geared to providing benefits for people who are extremely wealthy and imposing the costs on low- and middle-income households,” he says pointing to U.S. tax cuts for the wealthy.

Taken all together, this suggests that access to education is effective in reducing the income gap only if it’s part of a broader strategy to even out wealth disparities in society as a whole.

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A Canadian Case

Originally from Hudson, Que., McCaffrey says she came to Nova Scotia for school because she wanted a change in scenery. She says she never felt completely comfortable in Quebec.

Like many university students, factors other than finances — such as where to attend school and what to study — played into her decisions about university.

McCaffrey qualifies for Quebec in-province tuition, meaning she would likely only spend close to $2,100 per year instead of the $5,731 she pays to study in Nova Scotia.

Quebec serves as an excellent case study of the complex relationship between post-secondary education and income inequality.

In Quebec, in-province students pay less than half of the national tuition average -- tuition fees were frozen at $1,700 from 1994 to 2007.

However, even with more accessible education, according to Statistics Canada, as of 2009 Quebec had the lowest median income in Canada. While the national average was $48,300, Quebec had a median provincial income of $42,100.

Accounting For Personal Taste

McCaffrey might be one such example of why the numbers don’t add up -- at least on the surface level. For her, the experience of being away from home is more important.

“The prospect of affordable education has crossed my mind several times, even since I’ve moved here [to Halifax]. I’ve considered moving back because I’m already in such debt and I haven’t been here that long,” she says.

But she’s enjoying her classes in sustainability studies and so has decided to stay — at least for now.

“For me, having grown up in a low-income family with a single mom... I can get by on not a whole lot,” she says. While she lives off a combination of loans and grants from the Quebec government — supporting herself on $200 a month after rent and tuition — non-financial factors motivate her to continue her education.

“I feel like a degree will give me access to a lot more opportunities, not necessarily to make more money but to enjoy my life,” says McCaffrey. “I think it would be a lot more stressful working at McDonald’s or as a secretary, making not so much money in the long run.”

In a 2011 Statistics Canada study, researchers found that many factors influenced a student’s decision to attend university, including whether or not their parents had obtained a post-secondary education and if they came from a rural area as opposed to an urban centre.

Interest in a particular program or a desire for a specific post-secondary “experience” — such as travelling or studying abroad — can also influence a student’s decisions.

Lisa Godde, a first-year student at Dalhousie University, left Germany so she could pursue a bachelor’s degree in international development studies, which is offered only as a master’s degree in Germany.

“If I studied abroad I would have [greater] chances back in Germany to get a job than people who studied in Germany because, for example, my English skills get developed [and] are better,” says Godde.

While average tuition in Germany for European Union students can total EUR 1,000 per academic year — approximately $1,322 — Godde is now paying more than four times the amount that she would be paying for a post-secondary education at home.

She says she understands that studying abroad is something you can do only if you have the financial means to do so.

For students who can’t afford post-secondary education, making it more accessible provides greater opportunities. But not all students will choose that path.

NEXT PAGE: HOW MUCH WOULD CHEAPER TUITION HELP?

How Much Would Cheaper Tuition Help?

Pressman says making college more affordable will make a difference.

“The difficult question to answer is how much of a difference it will make,” he says.

For McCaffrey, reduced tuition in Nova Scotia would minimize her debt, although accessible education isn’t a driving force in her life. She has doubts about how much lowering tuition would actually affect income inequality across across Canada.

“By comparison, people who are maybe making a little bit more money because they’ve graduated and have a degree are still making miles less than people at the top,” she says.

However, she says the prospect of making enough money to support herself and pay off her loans is appealing.

And while she has realistic hopes, she still thinks it’s a gamble.

“It’s an experiment in investing and if it doesn’t work out it means I probably won’t invest ever again in anything, as in I probably won’t have a mortgage or buy a car.”

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