Convergence in human capital and income

Followed by a long period of divergence of income levels, new evidence shows that poorer countries are converging to the income levels of richer economies. We show that in a model where human capital is the engine of growth, the variation in human capital can account for the variation in income levels. To explain the increase and the reduction in the dispersion of income, it is important to differentiate between the variance of the returns to education and the variance of the quantity of education, since the two evolve in opposite directions. The increase in the dispersion of per capita GDP from 1960 to 2000 can be mostly explained by the increase in the variation in the returns to schooling, which outweighs the reduction in the variation of the years of schooling. From 2000 onward, the process reverses and the convergence in the years of schooling has been able to offset the divergence of the returns, so that a convergence process in income levels has taken place.