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Aslun LevelomenL 8unk

Soclul lncluslveness ln Aslu's Lmerglng Mlddle lncome


CounLrles
SeLember z, 1ukurLu, lndoneslu

S ec/ining lnequo/ity in Lotin Americo: A ecode oj Progress? Edited by Luis F.


Lopez-Ca|va and Nora Lustig, Brookings Institution and UNOP, z
S Oec|ining Inequa|ity in Latin America: 5ome Economics, 5ome Po|itics,"
Birdsa||, Lustig and McLeod in ondbook oj Lotin Americon Po/itics,
forthcoming
S Oec|ining Inequa|ity in Latin America: How Much, 5ince When and Why?,"
Lustig, Lopez-Ca|va and Ortiz, working paper, Tu|ane University, forthcoming
S Poverty and Inequa|ity under Latin America's New Left Regimes," McLeod,
Oarry| and Nora Lustig (z). Paper prepared for the
th
Annua| LACEA
Meeting, Mede||in, Co|ombia: Universidad de Antioquia and Universidad Eafit.
Under revision, z
S Cambios en |a desigua|dad de| ingreso en America Latina. Contribucion de sus
principa|es determinantes: ~ z6" (z) A|e|o et a|., PNUO
S Commitment to Equity: Fisca| Po|icies in Latin America" coordinated by Nora
Lustig: Argentina (Caro|a Pessino), Bo|ivia (George Gray Mo|ina, Veronica Paz
and Ernesto Yanez), Brazi| (C|audiney Pereira and 5ean Higgins), Mexico (1ohn
5cott) and Peru (Migue| 1arami||o and Barbara 5parrow)
z

S lnequullLy ln LA
S lnLernuLlonul comurlson
S Lecllnlng lnequullLy ln LA:
owMuch?
SlnceWhen?
S Lecllnlng lnequullLy: Why?
S lulllng sklll remlu
S More rogresslve governmenL Lrunsfers
S CuveuL: Under-reorLlng of 1o lncomes und lnequullLy
1rends
S 1he luLure: Wlll (Meusured) lnequullLy ConLlnue Lo Lecllne?

32.2
33.6
38.9 38.9
39.1
44.7
53.2
20.0
25.0
30.0
35.0
40.0
45.0
50.0
55.0
60.0
High Income Europe and
CentraI Asia
South Asia North Africa
and the
MiddIe East
East Asia and
the Pacific
Sub-Saharan
Africa
Latin America
and the
Caribbean
G
i
n
i

c
o
e
f
f
i
c
i
e
n
t
#
think the data for Asia are not correct. Please look at ADB Key ndicators 2007. This has data on
Excess Inequa|ity (IOB, z)
#
Excess Poverty (IOB, z)
#
ou may wish to say that poverty in Asia (2.5 $) m in comparison to
LA - is much higher at around 40%, and MCs have higher poverty
Trends in Inequa|ity
Gini Coefficient Ear|y 's-Late z's
Light Grey: Countries with Fa||ing Ineq (Lustig et a|., z)

0.509
0.523
0.530
0.518
0.503
0.520
0.537
0.540
0.524
0.502
0.480
0.490
0.500
0.510
0.520
0.530
0.540
0.550
Early 90s
(12 countries)
Mid-90s
(15 countries)
Late 90s (16
countries)
Mid-2000s
(17 countries)
Late 2000s (17
countries)
am not clear what the
message in this figure
is
Trends in Poverty: -z (IOB, z)

nteresting: While in LA GDP/capita goes up and 2.5$ poverty down in Asia, GDP per capita goes up but $2
poverty remains stable and high at 40%. What does this mean for the inclusiveness of growth in both
regions?
S Inequa|ity in most Latin American countries
( out of )) has dec|ined (rough|y % a
year) between (circa) z and (circa) z
S Oec|ine is statistica||y significant
S Oec|ine continued through the g|oba|
financia| crisis in z
S
AOB's research on inequa|ity shows that this is different in Asia, where inequa|ities are
rising during the |ast years of economic growth

Change in Gini Coefficient by Country: circa
z-z (year|y change in percent)

Change in Gini Coefficient by Country: circa


z-z (year|y change in percent)
z
ou can delete this slight as it is a
duplication
8.2
-8.4
2.7
-7.4
0.1
-6.2
2.6
-6.0
4.1
-5.4
1.5
-4.4
2.5
-4.2
5.0
-4.1
0.8
-3.5
0.1
-3.1
2.1
-2.9
2.7
-5.0
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
1
9
9
2
-
2
0
0
2
2
0
0
2
-
2
0
0
9
1
9
9
7
-
2
0
0
3
2
0
0
3
-
2
0
0
9
1
9
9
7
-
2
0
0
3
2
0
0
3
-
2
0
0
9
1
9
9
5
-
2
0
0
1
2
0
0
1
-
2
0
0
8
1
9
8
5
-
1
9
9
8
1
9
9
8
-
2
0
0
9
1
9
8
9
-
2
0
0
1
2
0
0
1
-
2
0
0
9
1
9
8
9
-
1
9
9
6
1
9
9
6
-
2
0
0
8
1
9
8
9
-
2
0
0
2
2
0
0
2
-
2
0
0
6
1
9
9
2
-
1
9
9
8
1
9
9
8
-
2
0
0
9
2
0
0
0
-
2
0
0
3
2
0
0
3
-
2
0
0
9
1
9
9
7
-
2
0
0
2
2
0
0
2
-
2
0
0
7
Argentina Peru Paraguay El Salvador Brazil Panama Mexico Venezuela Chile Dominican
Rep.
Bolivia
Change oI Gini in percentage points Average oI increase Average oI decrease

Why this different? think your message is: Public policies


and not markets, think make the difference
S Oec|ine in inequa|ity is statistica||y
significant and significant in terms of order
of magnitude
S There is Lorenz dominance (unambiguous
dec|ine independent|y of choice of
inequa|ity measure)
S Robust to income concept (e.g., monetary
vs. tota|)

S ln Lhree counLrles, durlng second hulf of s:


Mexlco, 8ruzll undChlle
S ln slx, sLurLed ln zz-z: ArgenLlnu, 8ollvlu, Ll
Sulvudor, Puruguuy, Punumu und Peru
S ln oLhers, ulLhough Lhere ure flucLuuLlons, lnequullLy
beLween z und z lncreused: CosLu Rlcu,
ondurus und Uruguuy (only sLuLlsLlcully slgnlflcunL of
Lhree)
Whlle growLh ruLes were slmllur ln ull counLrles, Lhre counLrles LhuL reduced lnequullLles ure
Lhe counLrles wlLh mu|or overLy reudcLlonunfd soclulroLeLclon rogrums
#
#
Mexico
Brazil, Chile
El Salvador, Panama
Argentina, Bolivia,
Venezuela
Dominican Republic,
Ecuador, Paraguay, Peru
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Y
e
a
r

w
h
e
n

i
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e
q
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l
i
t
y

s
t
a
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e
d

t
o

d
e
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l
i
n
e
The dec|ine took p|ace in:
S Persistent|y high inequa|ity countries (Brazi|)
and norma||y |ow inequa|ity countries
(Argentina)
S Fast growing countries (Chi|e and Peru), s|ow
growing countries (Brazi| and Mexico) and
countries recovering from crisis (Argentina
and Venezue|a)
S Countries with |eft popu|ist" governments
(Argentina), |eft socia|-democratic
governments (e.g., Brazi|, Chi|e) and
centerjcenter-right governments (e.g., Mexico
and Peru)
#

-
1
.
2
3
-
1
.
0
7
-
1
.
0
7
-
0
.
6
6
0
.
1
2
-
0
.
7
8
-
1
.
2
9
-
0
.
9
7
-
0
.
7
7
-
0
.
3
9
0
.
7
9
-
0
.
5
3
-
1
.
5
-
1
.
0
-
0
.
5
0
.
0
0
.
5
1
.
0
Argentina
Brasil
Venezuela
Chile
Uruguay
LeIt-wing
El Salvador
Panama
Mexico
Peru
Honduras
Non-leIt


Iigure 8: Redistributive impact of changes in social spending budget share by quintile
(change significant at *S or **J level)
06**
081**
083**
008
26**
026
021
049*
044*
1S
029*
31* 033**
016
12*
1st u|nt||e 2nd u|nt||e 3rd u|nt||e 4th Sth u|nt||e
Source Append|x A 1ab|e A3 and McLeod and Lust|g (2011)
I|gure 24 ked|str|but|ve |mpact of changes |n soc|a| spend|ng
budget share by qu|nt||e (change s|gn|f|cant at *S or **1 |eve|)
Soc|a| Democrat|c
Left opu||st
Non|eft

Source: McLeod and Lustig ,2011,.
S In-depth ana|ysis in four countries:
Argentina (Gasparini and Cruces) (urban, zj
of pop)
Brazi| (Barros, Carva|ho, Mendoca 8 Franco)
Mexico (Esquive|, Lustig and 5cott)
Peru (1arami||o 8 5aavedra)
5ource: Lopez-Ca|va and Lustig (z)
z
z
S Representative samp|e of Latin
American diversity:
Shighjmediumj|ow ineq
Shighj|ow growth
SPopu|istjsocia| democraticjcenter-
center-right governments
zz
5amp|e Representative of High and Low Inequa|ity
Countries
(Latin America: Gini Coefficient by Country, circa z), in percent)
43.5
46.8
48.2
48.3
48.9
49.7 49.7
49.9
51.8
52.3
53.2
54.3 54.4
54.8 54.9
57.2
59.3
51.6
40
45
50
55
60
65
V
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t
z
S Argentina and Peru were growing at
around 6 percent a year since z
S Brazi| and Mexico were growing at |ess
than percent a year (Brazi|'s growth rate
picked up on|y from z onwards)
-5
-3
-1
1
3
5
7
9
11
13
15
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
A
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a
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a
I

g
r
o
w
t
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r
a
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e

(
%
)

Distribution of countries (%)
Distribution of countries according to the average per capita GDP
growth rate between 1990 and 2005
BraziIian top 10%
BraziIian bottom 10%
China
Germany
Haiti
Income of the Brazi|ian poor has been growing as fast as per
capita GOP in China whi|e income of the richest ten percent has
been growing |ike Germany's per capita GOP
This is a very interesting graph
z#
4.1
3.8
3.3
3.1
2.8
2.6
2.3
2.2
1.8
0.6
2.7
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
1 2 3 4 5 6 7 8 9 10
#
a
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o
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a
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a
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g
r
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(
i
n

)
Decil
Household per capita income Ior each decile Average oI income per capita growth rates
S There are many different factors that affect the distribution of
income over time: . the evo|ution of the distribution of
income is the resu|t of many different effects~some of them
quite |arge~which may offset one another in who|e or in
part." (Bourguignon et a|., z)
S Usefu| framework: to consider the 'proximate' factors that
affect the distribution of income at the individua| and
househo|d |eve|:
. Oistribution of assets and persona| characteristics
z. Return to assets and characteristics
. Uti|ization of assets and characteristics
q. Transfers (private and pub|ic)
. 5ocio-demographic factors
z#
S Proportion of working adu|ts as a share of the tota| number of
adu|ts (and tota| househo|d members) rose, part|y |inked to the
sharp increase in fema|e |abor force participation:-z6 by
. p.pts in Mexico, q.z in Argentina, z. in Brazi| and . in
Peru.
Oependency ratios improved proportionate|y more
for |ow incomes.
Working adu|ts (except for Peru) became more
equa||y distributed (fema|e adu|ts participated
proportionate|y more for |ow incomes)
S Average years of schoo|ing rose faster for the bottom quinti|e
than for the top quinti|e.
=> Oistribution of education (human capita|)
became more equa| in a|| four countries
z
z
ousehold er culLu lncome und lLs deLermlnunLs
Per capita
househoId
income
Per capita
househoId
income
Proportion of aduIts in
the househoId
WERTILITY
Proportion of aduIts in
the househoId
WERTILITY
HousehoId
income per
aduIt
HousehoId
income per
aduIt
HousehoId non-Iabor
income per aduIt
WRENTS & PROITS
WREMITTANCES
WGOV. TRANSERS
HousehoId non-Iabor
income per aduIt
WRENTS & PROITS
WREMITTANCES
WGOV. TRANSERS
HousehoId
Iabor income
per aduIt
HousehoId
Iabor income
per aduIt
Proportion of working aduIts
WPARTICIPATION IN LABOR
ORCE
WEMPLOYMENT OPPORT
Proportion of working aduIts
WPARTICIPATION IN LABOR
ORCE
WEMPLOYMENT OPPORT
Labor income per working
aduIt in the househoId
WWAGES BY SKILL/OTHER
WHOURS WORKED
Labor income per working
aduIt in the househoId
WWAGES BY SKILL/OTHER
WHOURS WORKED
OEMOGRAPHIC
WMARkET
WPOLITIC5j
IN5T.
W5TATE
WOEMOGRAPHIC
WMARkET
WOEMOGRAPHIC
WMARkET
WPOLITIC5jIN5T.j
5OC. NORM5
W5TATE
(EOUCATION)

S Per culLu household lncome cun be wrlLLen us:


y = o ( u w + o)
S 1hls ldenLlLy reluLes chunges ln er culLu household
lncome, y, Lo lLs four roxlmuLe deLermlnunLs:
(l) chunges ln Lhe roorLlon of udulLs ln Lhe household, o,
(ll) chunges ln Lhe roorLlon of worklng udulLs, u,
(lll) chunges ln lubor lncome er worklng udulL ln Lhe
household, w, und
(lv) chunges ln household non-lubor lncome er udulL, o.

S emogrophics: Changes in the ratio of


adu|ts per househo|d were equa|izing,
a|beit the orders of magnitude were
genera||y sma||er except for Peru.
S Lobor jorce porticipotion: With the
exception of Peru, changes in |abor
force participation (the proportion of
working adu|ts) were equa|izing. This
effect was stronger in Argentina.
z
S Lobor income (Lornings): In Argentina, Brazi|, and
Mexico between qq% and 6% of the dec|ine in
overa|| inequa|ity is due to a reduction in earnings
per working adu|t inequa|ity. In Peru, however,
changes in earnings inequa|ity were unequa|izing
at the househo|d |eve| but not so at the individua|
workers' |eve|.
S on-/obor income: Changes in the distribution of
non-|abor income were equa|izing, the
contribution of this factor was quite high in Brazi|
and Peru (q% and %, respective|y).

Main finding:
=> Oec|ine in |abor incme
(except for Peru at the househo|d
|eve|) and non-|abor income
inequa|ity important
determinants of the dec|ine in
overa|| income inequa|ity (in per
capita househo|d income)

Lecllne ln lubor lncome lnequullLy:


S emloymenL generuLed by recovery: oen
unemloymenL fell from . ln z Lo .# ln
z#
S shlfL ln fuvor of more low-skllled, lubor-lnLenslve
secLors us u resulL of Lhe devuluuLlon
S rlse ln Lhe lnfluence of lubor unlons whlch comresses
wuges
S fudlng of Lhe one-Llme effecL of sklll-blused Lechnlcul
chunge LhuL occurred ln Lhe s
Lecllne ln non-lubor lncome lnequullLy:
S more rogresslve governmenL Lrunsfers: 1efes y 1efus
de ogur rogrum luunched ln zz
#
#
rgentina: #eturns to education
Ratio predicted wages
1980
1986
1992
1998
2006
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Secondary/primary College/primary

This is important: it shows the need to invest in higher education. n Asia too
many governments still focus on basic education and leave higher education to
market/families' income
#
Why did GN go down in 1990 so rapidly? Was there a similar anti-poverty
program that time ?
S Lecllne ln lubor lncome lnequullLy:
AbouL # uccounLed for by decllne ln uLLulnmenL
lnequullLy (quunLlLy effecL) und less sLee reLurns --
wuge gu by sklll nurrows(rlce effecL). LuLLer
domlnunL. (See Clnl for yeurs of schoollng und reLurns
by sklll ln nexL Lwo slldes)
AbouL z# uccounLed for by decllne ln suLlul
segmenLuLlon, eseclully, reducLlon ln wuge
dlfferenLluls beLween meLroollLun ureus und
medlumjsmull munlclullLles. Also, decllne ln secLorul
segmenLuLlon.

igure 7.2: EvoIution of the wage differentiaI among metropoIitan regions and different
sized municipaIities: 1995-2006
6,1
18,4
10,4
10,1
10,7
12,9
11,0
9,4
9,3
6,2 6,4
4,5
5,6
30,2
29,5
32,0
28,0
26,0
25,7
23,0
20,7
17,1
19,3
15,4
14,5 14,5
13,3 13,2
13,1
13,6
11,8
10,7
11,4
0
5
10
15
20
25
30
35
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Years
D
i
f
f
e
r
e
n
t
i
a
I

(
%
)
DifferentiaI between metropoIitan
regions and medium country
municipaIities
DifferentiaI between medium and
smaII country municipaIities
DifferentiaI between metropoIitan
regions and smaII country
municipaIities
S ConLrlbuLlon of chunges ln Lhe dlsLrlbuLlon of
lncome from usseLs (renLs, lnLeresL und
dlvldends) und rlvuLe Lrunsfers wus
unequullzlng buL llmlLed.
S MosL of Lhe lmucL of non-lubor lncome on Lhe
reducLlon of overull lncome lnequullLy wus due
Lo chunges ln Lhe dlsLrlbuLlon of ubllc Lrunsfers:
chunges ln slze, coveruge und dlsLrlbuLlon of
ubllc Lrunsfers. 8olsu lumlllu uccounLs for close
Lo ercenL of Lhe decllne ln household er
culLu lncome lnequullLy.

S Lecllne ln lubor lncome lnequullLy:


LducuLlonul uLLulnmenL becume more equul und reLurns less sLee.
1he luLLer seems Lo be ussocluLed wlLh Lhe decllne ln reluLlve suly of
workers wlLh low educuLlonul levels. 8eLween und z#, Lhe shure
of workers wlLh less Lhun lower-secondury educuLlon fell from ## Lo
uround .
lL colncldes wlLh Lhe erlod ln whlch governmenL guve u blg ush Lo
buslc educuLlon.
8eLween z und zz sendlng er sLudenL ln LerLlury educuLlon exunded ln
reul Lerms by #.# ercenL whlle lL rose by # ercenL for rlmury educuLlon.
1he reluLlve ruLlo of sendlng er sLudenL ln LerLlury vs. rlmury educuLlon Lhus
decllned from u hlsLorlcul muxlmum of z ln -, Lo less Lhun # ln -
z (by comurlson, Lhe uveruge ruLlo for hlgh-lncome OLCL counLrles ls close
Lo z).
exL Lwo slldes show: Clnl for yrs. of schoollng und reLurns Lo schoollng

S 1he equullzlng conLrlbuLlon of governmenL


Lrunsfers lncreused over Llme (boLh uL Lhe
nuLlonul level us well us for urbun und, eseclully,
rurul households). 8y z# Lrunsfers becume Lhe
lncome source wlLh Lhe lurgesL equullzlng effecL
of ull Lhe lncome sources consldered.
S RemlLLunces becume more equullzlng Loo buL
wlLh u smuller effecL Lhun governmenL Lrunsfers.
S 8oLh more Lhun offseL Lhe lncreuslngly
unequullzlng lmucL of enslons.

The discussion of remittances is important for Asia too. Many gvts here trust in remittances a lot (e.g. PH). But
you say that in LA remittances have little redistributive effect. think the same is here in Asia, as remittances are
S 1he shur rlse ln Lhe role und equullzlng lmucL
of ubllc Lrunsfers wus u consequence of u
slgnlflcunL ollcy shlfL ln #, when Lhe
governmenL luunched Lhe condlLlonul cush
Lrunsfer rogrum ^[Y^W_S\[^`aZVSVW_.
S Lurlng #-z# Lhe slze of ubllc Lrunsfers
lncreused, Lhey becume more equully dlsLrlbuLed
umong recllenLs, und Lhe recllenLs of Lrunsfers
lncreuslngly belonged Lo reluLlvely oorer
segmenLs of Lhe ouluLlon.

#
S Lubor lncome lnequullLy:
Chunges ln educuLlonul sLrucLure were equullzlng uL
Lhe household und lndlvlduul workers levels.
Chunges ln reLurns Lo educuLlon, however, were
equullzlng uL Lhe lndlvlduul workers level buL noL uL
Lhe household level. Chunges ln ussorLuLlve muLchlng
mlghL huve been u fucLor.
Lurnlngs gu by sklll nurrowed uL Lhe lndlvlduul
workers level us ln Lhe oLher counLrles. ludlng ouL of
sklll-blused Lechnlcul chunge und u more equul
dlsLrlbuLlon of educuLlonjeducuLlonul ugrudlng.
exL Lwo slldes show Lhe Clnl for yeurs of schoollng
und Lhe reLurns Lo schoollng.
#

S Educationa| upgrading and a more equa|


distribution of educationa| attainment have been
equa|izing (quantity effect). No paradox of
progress" this time.
S Changes in the steepness of the returns to
education curve have been equa|izing at the
individua| workers |eve| (price effect). Except for
Peru, they have been equa|izing at the househo|d
|eve| too.
S Changes in government transfers were
equa|izing: more progressive government
transfers (monetary~e.g., CCT--and in-kind
transfers), expansion of coverage, increase in the
amount of transfers per capita, better targeting.
S lncreose in re/otive demond jor ski//ed /obor
petered out: Fading of the unequa|izing effect
of ski||-biased technica| change in the s:
Argentina, Mexico 8 Peru.
S ec/ine in re/otive supp/y oj /ow-ski//ed
workers: Expansion of basic education since
the s: Brazi|, Mexico and Peru .
#
#
Other effects:
S ec/ine in spotio/ /obor morket segmentotion in
Brazi|.
S In the case of Argentina, the dec|ine a|so
driven by a pro-union government stance and
by the impetus to |ow-ski|| intensive sectors
from deva|uation. In Brazi|, increase in
minimum wages.
#
S In the four countries government transfers
to the poor rose and pub|ic spending
became more progressive
In Argentina, the safety net program ejes y ejos de
ogor.
In Brazi| and Mexico, |arge-sca|e conditiona| cash
transfers => can account for between and z
percent of reduction in overa|| inequa|ity. An effective
redistributive machine because they cost around .%
of GOP.
In Peru, in-kind transfers for food programs and
hea|th. A|so access to basic infrastructure for the poor
rose.
#
##
S In the race" between ski||-biased techno|ogica|
change and educationa| upgrading, thanks for the
expansion in investments in education, in the |ast
ten years the |atter has taken the |ead
(Tinbergen's hypothesis)
S Perhaps as a consequence of democratization and
po|itica| competition, government (cash and in-
kind) transfers have become more generous and
targeted to the poor
##
S Oespite the observed progress, inequa|ity continues to
be very high (the highest in the wor|d) and the bu|k of
government spending is not sufficient|y progressive.
S The dec|ine in inequa|ity resu|ting from the educationa|
upgrading of the popu|ation wi|| eventua||y hit the
'access to tertiary education barrier' which is much
more difficu|t to overcome: inequa|ity in qua|ity and
'opportunity cost' are high and cost|y to address.
=> United 5tates experience shou|d serve as warning (Go|din
and katz, z)
##
#

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