Gender-neutral vs gender-specific education subsidy: effects on schooling and earning inequality

Purpose Developing countries are characterized by gender wage inequality that can be largely attributed to gender-based disparities in education. Education subsidy can be an effective tool for reducing the inequality in human capital formation. However, the parents’ decision in response to the subsidy is a crucial determinant of gendered inequality in schooling and earnings. The paper aims to examine the effects of gender-neutral and gender-specific education subsidy policies on the gendered differences in schooling and earnings. Design/methodology/approach A three-sector full employment general equilibrium model is developed, where the amount of schooling of children is determined by the intertemporal utility maximizing behaviour of the parents over two periods. Findings The results indicate that higher gender-neutral education subsidy may raise the amount of schooling of boys more than girls and aggravate the schooling inequality in a society with traditional gender norms; the effect on earning inequality depends on the relative gendered returns to education and the marginal effects of the subsidy on relative schooling levels. However, gender-specific subsidy policies raise female schooling, thereby narrowing gender-based schooling and are likely to favourably affect the earning inequality. Originality/value The paper tries to analyse the linkage between education and labour market within a gender dimension. On the one hand, it tries to explain parental schooling decision due to gender-neutral and gender-specific education subsidies, and on the other, it examines the effects of these two subsidy policies on gendered schooling inequality and gender earnings inequality in a dynamic model.