Reaching for the SKY: Parental Investments in Academic Skills and Competition for University Places

Abstract

I study the development of child academic skills through adolescence in anticipation of entry to university in the context of South Korea. I look at how heterogeneity in initial household income and child skills affects parents' decisions to invest in private education for their child, and how the resulting choices contribute to inequality in university admissions in the first instance, and also to lower social mobility in terms of lifetime earnings. I use a non-linear factor approach to estimate human capital production functions that are placed within an equilibrium framework to account for the fact that places at top universities are highly attractive but also limited. I find that there are strong complementarities between different academic skills and that private education in one subject can have strong spillover effects on the accumulation of skills in cognate subjects. The implied equilibrium competition for limited places at top universities contributes to low inter-generational social mobility, and, conversely, policies that would limit competition could improve equality and the allocation of talent.