Abstract
This paper examines human capital inequality and how it relates to earnings inequality in Portugal using data from Quadros de Pessoal for the period 1986–2017. The objective is threefold: (i) show how the distribution of human capital has evolved over time; (ii) investigate the association between human capital inequality and earnings inequality; and (iii) analyse the role of returns to schooling, together with human capital inequality, in the explanation of earnings inequality. Our findings suggest that human capital inequality, computed based on the distribution of average years of schooling of employees working in the Portuguese private labour market, records a positive trend until 2007 and decreases from this year onwards, suggesting the existence of a Kuznets curve of education relating educational attainment levels and education inequality. Based on the decomposition of a Generalized Entropy index (Theil N) for earnings inequality, we observe that inequality in the distribution of human capital plays an important role in the explanation of earnings inequality, although this role has become less important over the last decade. Using Mincerian earnings regressions to estimate the returns to schooling together with the Blinder-Oaxaca decomposition of real hourly earnings we confirm that there are two important forces associated with the observed decrease in earnings inequality: a reduction in education inequality and compressed returns to schooling, mainly in tertiary education.
Highlights
Portugal still compares poorly with the average European Union (EU) member state and the OECD average in several education indicators, such as educational attainment (2018: 50.2% of 25–64 year olds with only below upper secondary education in1 3 Vol.:(0123456789)Portugal, 21.2% OECD average) or higher than average early leavers from education and training (2018: 11.8% of population aged 18–24, EU average 10.6%)
We use data from Quadros de Pessoal, QP (Personnel Records) database to compute the distribution of human capital, proxied by average years of schooling of employees working in the Portuguese private labour market, as well as the distribution of the respective earnings for the period 1986–2017
Using Mincerian earnings regressions to estimate the returns to schooling together with the Blinder-Oaxaca decomposition of hourly real earnings we try to deepen our understanding on the possible causes of earnings inequality dynamics, fundamental for better informed policy decisions aimed at reducing inequality, a core concern across developed countries over recent decades, Nolan and Valenzuela (2019)
Summary
Portugal still compares poorly with the average European Union (EU) member state and the OECD average in several education indicators, such as educational attainment We use data from Quadros de Pessoal, QP (Personnel Records) database to compute the distribution of human capital, proxied by average years of schooling of employees working in the Portuguese private labour market, as well as the distribution of the respective earnings for the period 1986–2017. Our contribution is both descriptive and analytic: we measure inequality in educational attainment in the Portuguese economy and describe how it has evolved over the last 30 years.
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