Does Educational Achievement Help to Explain Income Inequality?

Book excerpt: This paper proposes to measure inequality in educational achievement by constructing a Gini index on educational attainment. It uses the proposed measure to analyze the relationship between inequality in world income and educational attainment (in terms of both the average attainment and the dispersion of attainment). Though theoretical considerations suggest a nonlinear relationship between these two measures of inequality, actual data indicate that there is a strong negative link between average years of education and measured income inequality. Multivariate regression analysis indicates that if the negative correlation between average educational attainment and the dispersion of educational attainment are taken into account, the relationship between income inequality and average years of schooling appears U-shaped, with a lower turning point at 6.5 years. Income inequality is also negatively related to per capita income and positively related to the capital/output ratio and government expenditure on education. The relative contribution of education to income inequality explains between 3 and 16 percent of the variance, though the fraction is higher and shows a rising trend in developed countries. Data sources and additional tables are appended. (Contains 65 references.) (SM).