Does Educational Achievement Help to Explain Income Inequality?

In this paper we propose to measure the inequality of educational achievements by constructing a Gini index on educational attainments. We then use the proposed measure to analyse the relationship between inequality in incomes and educational achievements (in terms of both the average attainments and the dispersion of attainments). Even if theoretical considerations suggest a non- linear relationship between these two measures of inequality, actual data indicate that there is a strong negative linkage between average years of education and measured income inequality. Multivariate regressions also demonstrate that, if we take into account the negative correlation between average educational achievement and the dispersion of educational achievement, 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. Looking at the relative contribution of education to income inequality, we find that it explains between 3 per cent and 16 per cent of the variance, though the fraction is higher and shows a rising trend in developed countries.