Does Educational Inequality Explain Income Inequality Across Countries

A wide variety of studies support the notion that income inequality has detrimental effects on a country’s economic growth, levels of trust in government, and even health of its citizens. Throughout economics literature, numerous researchers have endeavored to explain the variance in income inequality across countries. One notable area of inquiry examines how dispersion in education of the labor force impacts income inequality, but it generally yields ambiguous and inconsistent results. This paper examines income inequality as a function of educational inequality in a cross-sectional analysis. It attempts to improve on previous research by utilizing more recent data such as the Gini coefficient of education calculated from the Barro and Lee (2010) dataset. Moreover, multiple regressions are analyzed which investigate the research question from a broader perspective, controlling for labor market outlook within a country, access and quality of education, socioeconomic conditions, and degree of meritocracy. Separate regressions are used grouping countries according to their level of development, due to the different institutional factors which make it difficult to compare countries across the development spectrum. This paper predicts that in accordance to human capital theory, educational inequality will positively impact income inequality.