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Golden Age of Capitalism: The effect of education on growth and inequality

Author

Listed:
  • Pier Paolo Saviotti

    (Utrecht University, Utrecht, the Netherlands, GREDEG CNRS, Sophia Antipolis, France)

  • Andreas Pyka

    (Economics Institute, University of Hohenheim, D-70593 Stuttgart, Germany)

  • Bogang Jun

    (Department of Economics, Inha University)

Abstract

This study explores the effect of education on the balance between income per capita and income distribution using the TEVECON model in which growth and development are driven by innovation, giving rise to new sectors. Our results can explain the Golden Age of Capitalism (1950 -1973), characterized by high growth rates and low inequality. Our experiments varying investment in education and its allocation to two social classes define a range of education policies that can lead to many combinations of income per capita and income distribution. We find that education can affect both the creation of high income per capita and income distribution, but it does not always guarantee ``positive'' economic outcomes in terms of the variables we investigate. Thus, of the development paths, our results include both scenarios similar to that described by the Kuznets curve and less ``virtuous'' ones similar to that detected by Piketty and Saez, in which economic progress is accompanied by increasingly inegalitarian income distribution. Moreover, our model predicts that even in highly developed economic systems, different education policies can give rise to combinations of high income per capita and low inequality or low income per capita and low inequality. In this context, a shift from a regime of high growth and falling income inequality, similar to the one observed in the 1950s to 1980s (P1), to a regime of lower growth and increasing income inequality, similar to the one observed in the 1980s to 2000s (P2), could have been produced by a transition from falling inequality in the distribution of education in P1 to rising inequality in the distribution of education in P2. Education alone cannot be considered to be the cause of the transition over P1-P2. Other factors such as liberalization and deregulation that began in the 1980s and increasing globalization, which has been greatly accelerated by the emergence of China, help transform the economic system in the same broad direction. In a general sense, our study shows that while education can greatly contribute to economic development, it is not an intrinsically beneficial force leading automatically to a richer and fairer society.

Suggested Citation

  • Pier Paolo Saviotti & Andreas Pyka & Bogang Jun, 2019. "Golden Age of Capitalism: The effect of education on growth and inequality," Inha University IBER Working Paper Series 2019-2, Inha University, Institute of Business and Economic Research.
  • Handle: RePEc:inh:wpaper:2019-2
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    More about this item

    Keywords

    Income distribution; Education; Development; Co-evolution;

    JEL classification:

    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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