Education and Income Growth: Implications for Cross-Country Inequality

This paper examines the extent to which patterns of human capital convergence can account for observed patterns of income inequality between countries. To do this I decompose national income into three components: one due to education levels, one reflecting the return to education, and a residual component. I then examine in turn the contribution of each of them to changes in income dispersion. Among the developed countries, convergence in education levels has resulted in a reduction in income dispersion. However, for the world as a whole, incomes have diverged despite substantial convergence in education levels. This is a result of increases in the return to education that favor the developed countries at the expense of the less developed countries.