Nexus Between Education and Income Distribution in High-Income Countries

Abstract

Economists have different opinions about the impact of education on income distribution. Some believe that education improves income distribution when education is free and available to all at the same quality. Others believe that education deepens inequality when access to education, which is associated with a higher level of income, is easier for the rich than for the poor. Various models have been used to test the effect of the level of education on income distribution in high-income countries. Panel data were collected for 15 high-income countries for the period 2003-to 2017. ARDL model was used to regress three models. The estimated models took into account, in addition to the average years of schooling, the effect of population growth, unemployment rate, and per capita national income as explanatory variables. The dependent variables were the income shares held by, the highest 20%, the middle 40%, and the lowest 40%. We found that education is an important determinant of income distribution in high-income countries in the long run, as it contributes to reducing the share of the rich class, and increases the shares of the middle and poor classes. In the short run, education has no significant effect on income distribution. As for the effect of other explanatory variables, it was found that per capita national income deterred income distribution, while it was found that population growth and unemployment enhance the share of the middle class and reduce the share of the poor, in the long run. These variables did not show a significant effect in the short run, except for the unemployment rate, which changes the income distribution in favor of the rich class.