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The impact of education expansion on wage inequality

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  • Juan Yang
  • Man Gao

Abstract

The findings on education expansion and income inequality have important implications for policymakers to implement effective policies to reduce income inequality. This study attempts to explain how education expansion affects income inequality by education distribution and the rate of return to education. We decompose the effect of education expansion on wage gaps into price effect and structure effect. We compare the income inequality from 2002 to 2013 using the Chinese Household Income Project (CHIP) 2002 and CHIP2013 survey data and employ FFL decomposition method. Our findings suggest that income inequality increased in 2013 and that income inequality among the high-income groups increased even more significantly. The structure effect of education expansion on income inequality is negative, when average education increases one year, the income gap between 80th and 20th will decrease 1.2%, in other words, education expansion decreases income inequality by allowing a wide range of individuals to attend college. However, this effect is offset by the price effect, which is positive and much more significant in magnitude. One extra year of average education will increase income gap by 29% which means that the demand for high-skilled labour is increasing faster than the supply and thus lead to the increasing premium for higher education return.

Suggested Citation

  • Juan Yang & Man Gao, 2018. "The impact of education expansion on wage inequality," Applied Economics, Taylor & Francis Journals, vol. 50(12), pages 1309-1323, March.
    • Handle: RePEc:taf:applec:v:50:y:2018:i:12:p:1309-1323
    DOI: 10.1080/00036846.2017.1361008
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    Cited by:

    1. Wang, Zheng-Xin & Jv, Yue-Qi, 2023. "Revisiting income inequality among households: New evidence from the Chinese Household Income Project," China Economic Review, Elsevier, vol. 81(C).
    2. Chien-Liang Chen & Lin-Chuan Chen, 2021. "The Impact of Higher Education Expansion on the Educational Wage Premium in Taiwan: 1985 to 2015," IJFS, MDPI, vol. 9(3), pages 1-12, July.
    3. Ugur, Mehmet, 2024. "Innovation, market power and the labour share: Evidence from OECD industries," Technological Forecasting and Social Change, Elsevier, vol. 203(C).
    4. Qiao Wen, 2022. "Trends in College–High School Wage Differentials in China: The Role of Cohort-Specific Labor Supply Shift," Sustainability, MDPI, vol. 14(24), pages 1-23, December.
    5. Bo wang & Nana Deng & Wenhui Zhao & Zhaohua Wang, 2022. "Residential power demand side management optimization based on fine-grained mixed frequency data," Annals of Operations Research, Springer, vol. 316(1), pages 603-622, September.
    6. Tang, Jianjun & Gong, Jiaowei & Ma, Wanglin & Rahut, Dil Bahadur, 2022. "Narrowing urban–rural income gap in China: The role of the targeted poverty alleviation program," Economic Analysis and Policy, Elsevier, vol. 75(C), pages 74-90.
    7. Ghulam Mustafa, 2023. "Is the Decision to Obtain Higher Education in Pakistan Worth Repaying? New Evidence from Returns on Education for Paid-Employees," PIDE-Working Papers 2023:6, Pakistan Institute of Development Economics.
    8. Vanesa Jorda & Jose M. Alonso, 2020. "What works to mitigate and reduce relative (and absolute) inequality?: A systematic review," WIDER Working Paper Series wp-2020-152, World Institute for Development Economic Research (UNU-WIDER).

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