Personal Earnings Variation and Education

Abstract

This chapter discusses personal earnings variation and education. Two fundamental propositions appear to hold true across countries and across time: first, personal income is very unequally distributed; second, income and education are positively correlated. Personal income consists of labor income, or earnings, plus interest, rent, and profit income derived from the ownership of nonhuman wealth. Inequality in the income distribution is because of inequality in the distribution of property income than it is to inequality in earnings. However, even in developed nations a great deal of inequality in personal earnings remains. In both competitive labor markets as well as many that are centrally planned, earnings differentials reflect underlying skill differences: labor compensation varies directly with labor productivity. The major key to differences in earnings lies in the differences in the amount of schooling received. Causes of differences in the amount of schooling among individual families can be divided into differences in the supply of opportunities and in differences in the investment-related demands for education. The strongest and most significant effects are found to be those related to the availability of financial resources affecting the supply of educational opportunities available.