Kjell Salvanes is a Research Professor at the Department of Economics, Norwegian School of Economics.
This paper examines the role that social interactions during high school play in driving the stark socio-economic inequalities in elite education that exist in most developed countries. Using administrative data from Norway and exploiting within school, between cohort variation in high school peer characteristics, we find that exposure to peers whose parents are elite educated (‘elite peers’) promotes elite educational attainment among all students, but exacerbates socioeconomic inequalities therein. We show that this detrimental effect on inequalities is due to two main factors. First, the presence of elite peers penalizes the GPA of low SES students, most likely because teachers adjust their grading behavior to the detriment of low SES students. Second, interactions with elite peers encourages high SES students to apply to an elite degree much more than it encourages low SES students. We provide evidence suggesting that the aspirations evoked by elite families may be too far from low SES students’ current experiences to give them an incentive to apply to elite degrees even if they have the ability to do so.