Lorenz Curve on U.S Universities (Blog 37, for Apr 18th)

In Economics, Lorenz Curve and Gini Coefficients are the two most commonly used measurements of inequality on wealth distribution. The Lorenz curve plots the proportion of the total income of the population on y axis that is cumulatively earned by the quintile of the population (x axis). Gini Coefficients is calculated as the area between the Lorenz Curve and the 45 degree line.

Lorenz Curve(Sources)

 

Usually, in a country it is a small portion of richest people holding the largest proportion of total wealth. For example, in the U.S, 2013, the lowest quintile have 3.2% of total household income, Second quintile hold 8.4%, third quintile have 14.4%, Fourth quintile have 23.0%, Highest quintile have 51.0%, which means that over half of the total household income is dominated by only 20% of the population. And top 5 percent people have 22.2% total household income. (Census Bureau).

One interesting thing is that the Lorenz Curve pattern is not only shown on population field, but also the wealth for U.S Universities have a similar distribution. By a WSJ article, the 10 richest institutions held nearly one-third of total cash and investments at four-year schools in fiscal 2014, while the top 40 accounted for two-third. What is more, the coffers of the nation’s 40 wealthiest universities, including Harvard University, Stanford University and the University of Michigan, are filling at a faster rate than those of other schools.

The reason behind such a mirror phenomena, which means that the wealth distribution among colleges mirrors the income distribution among population,  is easy to understand, and it actually is relative with the education quality. First, a good college such as Harvard, Stanford, UM attracts more outstanding students. Second, People who enter such education institutions usually come out with higher probability to earning more money. Third, in return, those alumni denote more money to their mother school which makes those college richer. Forth, richer school can afford more and better resources including professors, libraries and so on which could attract more outstanding students. If we check the most richest colleges, most of them are also top ranking schools. This is like a positive feedback system.

Some people worry that the rich schools get richer faster and the wealth gap between colleges is growing will makes poor people children enter such an education institution harder and harder, as they also have a higher tuition. Some people suggest that taxing those rich institutions like other businesses could solve the inequality among universities. Well, another idea is that the Government could make a joint education program between rich college and poor colleges. Sharing the education resources, but not the money.

4 thoughts on “Lorenz Curve on U.S Universities (Blog 37, for Apr 18th)

  1. Thomas Wen

    Great post. I think the huge alumni networks these top universities have also add to the positive feedback loop. The greater the network, the better the hiring rates/jobs these students get, which also attracts better students.

  2. Matthew Hillebrand

    It’s not really surprising when the top schools have the most funding. The top universities that have been here for a long time, such as the Ivy League and Michigan, have been able to make names for themselves as institutions, meaning that their name has weight. At the end of the day, there is always going to be a difference between the top percent and the bottom percentages because of differences in education and intelligence. Not saying we shouldn’t help, but there will never be true wage equality.

  3. Justin Lee

    Great post.

    I wonder, however, what is the effect on in-state tution/amendments on University of Michigan. Based on everything, UM should be treated as private institution (given that the state funding is 250,000 a year, which is not a lot, at all). This should be a big factor in terms of lack of potential growth.

Leave a Reply