Investing in education has a substantial effect on income inequality – 20 years of data prove

If Colorado wants to proactively decrease poverty levels and the income gap between white communities and communities of color, it should invest in education, the judiciary, health care and human services — instead of the corrections system.

That’s the conclusion of a recent study conducted by a Colorado State University economics professor and one of her master’s students. The ensuing report, “Economic Mobility for Low-Income Families in Colorado: The Need for Increased Targeted Public Investment,” was released Jan. 22 by The Bell Policy Center and finds that education tops the list of priorities for state funding if Colorado wants to boost the financial well-being of its low-income populations and communities of color.

Anita Alves Pena of CSU’s Department of Economics and John Singleton, who will earn his master’s degree in economics this spring, found that while Colorado’s economy has grown over the past two decades, low-income families and communities of color have not seen an increase in economic mobility as a result. They looked at the state’s “Big Six” public expenditure categories (health care, K-12 education, human services, higher education, corrections, and the judiciary) and asked themselves: If the state of Colorado were to spend $10 more on each of its residents, how should those dollars be best allocated among those six buckets?

These graphs show changes in the probability of poverty in white communities (red lines) versus communities of color (blue lines) with a $10 per-capita increase in state general fund spending, broken down by budget category.

‘An education story’

They found that investments in K-12 education and higher education would have the most impact on reducing financial inequalities and improving the economic status of low- and middle-income families.

“This is an education story, both in terms of K-12 and higher ed,” Pena said. “We found that adding public funding to those educational categories would be particularly meaningful to improve the quality of life for families in the state and reduce inequalities.”

Pena and Singleton analyzed almost 20 years of data from the American Community Survey, which is conducted as part of the U.S. Census, through 2018. They found that, when adjusted for inflation and population, the state’s public expenditures have remained stagnant during that time, and incomes have not kept pace with growing costs. In fact, in the case of higher education, state funding has decreased significantly, forcing Colorado colleges and universities to increase tuition to cover expenses. As a result, they found, fewer lower- and middle-income families can afford to send their kids to college.

“The changing costs are especially important for the generations of individuals who grew up being told to ‘go to college to get ahead in life,’” Singleton said. “That mindset was prevalent for multiple generations, but now our state investment undermines that value proposition, given the shift in costs onto individuals and families.”

Home ownership

Pena points out that having a college degree is a major factor in a person’s income, especially when it comes to home ownership, which is one of the primary ways to gain wealth. She said that boosting K-12 funding, on the other hand, tends to decrease poverty levels because of the positive effects it has on parents and families.