Global | Human capital and income inequality revisited

Summary

This paper explores the relationship between human capital inequality and income inequality, using an updated data set on human capital inequality for 146 countries from 1950 to 2010 and a novel database on earnings inequality.

Key points

• Key points:
• We find an inverted U-shaped relationship between these two inequality indicators, but with significant differences across countries regarding the turning point where the relationship between human capital inequality and earnings inequality becomes positive.
• Along with the development process in dual economies, we find that skill-biased technological change is an additional force that may blur the relationship between human capital and earnings inequality.
• We also find that the effect of earnings inequality on income inequality is statistically significant, relatively stable and economically relevant. Approximately each one-point change in the Gini coefficient of earnings contributes on average to a half-point change in the Gini coefficient for income.
• Finally, the paper shows that, over and above the effect exerted through earnings inequality, human capital inequality has a direct positive effect on income inequality.

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