The Influence of Education Levels on Income Inequality

Abstract

This paper explores the role of education in income inequality. The data comes from the United Nations Development Programme Human Development Reports and the Organization for Economic Cooperation and Development. We started with a simple linear regression, using the sample countries’ Gini index as a proxy for income inequality and the average years of schooling as a gauge of education levels. The Gini index is regressed on the average years of schooling to determine if low education levels lead to income inequality. Many other factors may contribute to income inequality, so additional models perform multilinear regressions. The dependent variable, Gini, stays the same, but we add new independent variables such as median age, percentage of population engaged in vulnerable employment, log of GDP per capita, government education expenditure, government health expenditure, foreign direct investment inflows, and a dummy variable for OECD countries. The purpose is to inform public policy on the allocation of educational resources in countries seeking to combat inequality.