Human capital doesn’t alone reduces income inequality research finds

Most developing countries have made a great effort to eradicate illiteracy. As a result, the inequality in the distribution of education has been reduced by more than half from 1950 to 2010. However, inequality in the distribution of income has hardly changed. This column presents evidence from a new dataset on human capital inequality. The authors find that increasing returns to education, globalisation, and skill-biased technological change can explain why the fall in human capital inequality has not been sufficient to reduce income inequality.

In recent decades, governments around the world have made a great effort to improve the education of their citizens. In developing countries, the effort has been concentrated on the eradication of illiteracy in several hundreds of millions of people. As a result, the inequality in the distribution of education has been reduced by more than half. Using an updated dataset on human capital inequality indicators, based on the improved educational variables by Barro and Lee (2013), Figure 2 shows a significant reduction in education inequality around the world from 1950 to 2010.¹In most countries, this large reduction has mainly been due to a sizeable decline in the share of illiterates. For example, in the Sub-Saharan African region, the average human capital Gini coefficient dropped from 0.80 in 1950 to 0.41 in 2010. This fact is not restricted to developing countries alone – the human capital Gini coefficient in the high-income OECD countries was 0.22 in 1950 and decreased to 0.15 in 2010.

Chosen excerpts by Job Market Monitor. Read the whole story at Human capital and income inequality | vox.