Education expansion and income inequality : Empirical evidence from China
Hu, Xiaoshan; Wan, Guanghua; Zuo, Congmin (04.12.2023)
Numero
7/2023Julkaisija
Bank of Finland
2023
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi-fe20231204151157Tiivistelmä
Education has long been perceived as a great equalizer, but even with universal rises in schooling years, income distribution worsened world-wide. We propose a method for decomposing the contribution of a variable to the change in inequality into mean, dispersion, and price components. The proposed method is then used to investigate the roles of the education variable in driving down China’s wage inequality between 2010 and 2018. We find that (1) education accounted for over 30% of total wage inequality in 2010 and 2018; (2) 70% of the overall decline in wage inequality from 2010 to 2018 can be attributed to education expansion, and (3) the 70% inequality-reducing effect was made up of 95% benign dispersion and price components and 25% malign mean component. The benign components are attributable to an improvement in educational equity and a de-crease in the college premium.
Julkaisuhuomautus
NON-TECHNICAL SUMMARY
FOCUS
Education has long been perceived as a great equalizer, yet income inequality globally has worsened despite universal rises in schooling years. To investigate this inconsistency, we consider the role that education plays in contributing to the level of, particularly to the changes in, income
inequality. The rapid expansion of education in China in recent years provides a suitable setting
for such research. We ask how education has propelled recent reductions in income inequality in
China.
CONTRIBUTION
Previous approaches exhibit methodological shortcomings. We propose a method that decomposes the contribution of a variable to a change in inequality into mean, dispersion, and price components. We then use the proposed method to investigate the roles of the education variable in reducing wage inequality in China between 2010 and 2018. To address the endogeneity issue, we use a major policy shock that occurred in 1999 to identify the causal relationship between wage levels and education in China.
FINDINGS
We find that (1) education accounted for over 30% of total wage inequality in both 2010 and 2018; (2) 70% of the overall decline in wage inequality between 2010 and 2018 was due to education expansion; and (3) the 70% inequality-reducing effect consisted of 95% benign dispersion and price components and 25% malign mean component. The benign components reflect improvement in educational equity and a decrease in college premium. Our findings suggest that education helps promote equality, albeit not in the conventional sense that overlooks the dispersion of the education variable where education expansion is described in terms of increases in average years of schooling. It is therefore crucial when expanding education to prioritize providing support and opportunities to those individuals who are economically disadvantaged, marginalized, or otherwise underprivileged.
FOCUS
Education has long been perceived as a great equalizer, yet income inequality globally has worsened despite universal rises in schooling years. To investigate this inconsistency, we consider the role that education plays in contributing to the level of, particularly to the changes in, income
inequality. The rapid expansion of education in China in recent years provides a suitable setting
for such research. We ask how education has propelled recent reductions in income inequality in
China.
CONTRIBUTION
Previous approaches exhibit methodological shortcomings. We propose a method that decomposes the contribution of a variable to a change in inequality into mean, dispersion, and price components. We then use the proposed method to investigate the roles of the education variable in reducing wage inequality in China between 2010 and 2018. To address the endogeneity issue, we use a major policy shock that occurred in 1999 to identify the causal relationship between wage levels and education in China.
FINDINGS
We find that (1) education accounted for over 30% of total wage inequality in both 2010 and 2018; (2) 70% of the overall decline in wage inequality between 2010 and 2018 was due to education expansion; and (3) the 70% inequality-reducing effect consisted of 95% benign dispersion and price components and 25% malign mean component. The benign components reflect improvement in educational equity and a decrease in college premium. Our findings suggest that education helps promote equality, albeit not in the conventional sense that overlooks the dispersion of the education variable where education expansion is described in terms of increases in average years of schooling. It is therefore crucial when expanding education to prioritize providing support and opportunities to those individuals who are economically disadvantaged, marginalized, or otherwise underprivileged.