What Causes Income Inequality Has Always Been A Challenging Question

1659 Words Dec 13th, 2016 7 Pages
What causes income inequality has always been a very challenging question. In fact, education has been argued to be one of the leading factor influencing income inequality. Though, most researchers agree on the importance of education as a reason, still some theoretical studies question it.
Earlier work from Ram (1989) shows, education is closely related to income distribution in advanced developed countries. Becker and Chiswick (1996) (using panel sets in the United States) suggest a positive correlation between income inequality and inequality in schooling, as well as a negative correlation between income inequality and the average level of schooling. Thus, a more equal education would lead to a greater income equality, whereas a higher average level of education would cause a greater income inequality. The human capital model of income distribution (Schultz, Becker, and Mincer) indicates that there are two possible scenarios regarding the effect of an Increase in average schooling (“Composition” and “wage compression effect”) (would need to discuss this later in the paper again or leave it out) The model indicates that the effect of increased schooling may be either positive or negative, importantly, depending on the rates of return. (leave out?)
Several studies confirm comparable trends using even bigger samples, however others like Ram (1984, 1989), using different data sets, disagree. He proposes that income inequality would not be significantly influenced by neither…

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