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Policies, Skills and Earnings: How Educational Inequality Affects Earnings Inequality

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  • Checchi, Daniele
  • van de Werfhorst, Herman Gerbert

Abstract

We study the impact of dispersions in education (both in student test scores and final educational attainment) on earnings inequality, in a country-cohort design. Neo-classical economic theory would predict a positive association between skill inequality (as measured in student test scores) and earnings inequality, while educational attainment inequality adds little on top of skills inequality. A sociological theory of social closure, however, argues that inequality in educational attainment is more important than skills inequality in the prediction of earnings inequality. Using educational policies as instruments, we find causal effects of skills inequality and educational attainment inequality, suggesting that a simple human capital model is insufficient to explain rising earnings inequalities. Nevertheless, skills inequality appeared a more important predictor of earnings inequality than educational attainment inequality. Some educational policy reforms (like public preschool provision or introducing standardised tests) led to reduced educational dispersions, and thereby reduced earnings inequality in adulthood.

Suggested Citation

  • Checchi, Daniele & van de Werfhorst, Herman Gerbert, 2017. "Policies, Skills and Earnings: How Educational Inequality Affects Earnings Inequality," SocArXiv wn3h2, Center for Open Science.
    • Handle: RePEc:osf:socarx:wn3h2
    DOI: 10.31219/osf.io/wn3h2
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    3. Asadullah, M. Niaz & Trannoy, Alain & Tubeuf, Sandy & Yalonetzky, Gaston, 2021. "Measuring educational inequality of opportunity: pupil’s effort matters," World Development, Elsevier, vol. 138(C).
    4. Vanesa Jorda & Jose M. Alonso, 2020. "What works to mitigate and reduce relative (and absolute) inequality?: A systematic review," WIDER Working Paper Series wp-2020-152, World Institute for Development Economic Research (UNU-WIDER).

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