Education Policy and Income Inequality When Aptitude Is Innate

We characterize the educational choices made by workers in terms of their innate aptitudes and how closely those aptitudes match available job types. A worker can choose to specialize in a narrow field or pursue a more general education based on the closeness of that match. Workers fortunate enough to have an innate aptitude closely matched to a job type will become highly specialized, and will reap high market rewards. Less fortunate workers will be less well-rewarded. Thus, there arises a distribution of income in the economy. The mean, variance and skewness of that distribution is a function of education policy, relating in particular to the educational opportunities made available, and how they are funded, whether through income tax or tuition charges. We cast this policy choice in terms of picking a point on a Kuznets curve, which dictates the relationship between average income and income-equality in this economy. JEL Classification: J24, I24, I26, I28