Human capital and the reduction of inequalities: an intra-national analysis in Italy

Human capital is a fundamental economic resource in the knowledge economy era, and improvements in education are usually associated with both economic development and the reduction of inequality. In Italy, these relationships are empirically controversial due to structural weaknesses (e.g., low improvements in labour productivity) and a poor capacity to leverage the returns from education. At the same time, the strong North-South dualism in the country suggests that there are inequalities in human capital endowment that may be exacerbated by the different responses of the regions to common problems. We test the effect of labour force human capital in Italy (observed through worker education level) on income inequality in the 2004–2016 period using regional data. The results suggest that the hypothesized mechanism works as expected in the more developed Centre-North, while structural difficulties hamper the reduction of inequality in the South, where, however, social capital plays a positive role in reducing the income inequalities.