Educational and income inequality in Europe, ca. 1870–2000

Péter Földvári and Bas van Leeuwen

Cliometrica, Journal of Historical Economics and Econometric History, 2014, vol. 8, issue 3, 271-300

Abstract: In this paper, we revisit the relationship between educational and income inequalities in a historical perspective, using a newly developed annual dataset of average years of education in Europe. Theoretically one would expect a reduction in educational inequality should, given the positive correlation between education level and income, initially increase and then, at a later stage, reduce income inequality. Testing for such a Kuznets-type relationship between educational and income inequalities yields an unexpected result: we find the expected inverse U-curve before the 1950s, but the relationship changes into a normal U-curve afterward. We explain this observation by a change in the trend of skill premium during the second half of the twentieth century due to an increased relative demand for skills, which contradicts the usual assumption of decreasing returns to education. Due to lack of appropriate wage data, we cannot directly capture this effect. Yet, once we use an instrumental variable estimation method to filter out the effect of the omitted skill premium, the expected inverse U-curve also appears for the latter decades of the twentieth century.

Keywords: Average years of education; Economic development; Inequality Kuznets-curve (search for similar items in EconPapers)
JEL-codes: J24 N10 O47 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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