More Education Reduces Income Inequality

A review of academic studies on the effects of education on income inequality shows that education is effective in reducing inequality. The study found that education reduces inequality by increasing the income share of the bottom earners and reducing the share of top earners. It appears to have a greater effect on increasing the income share of the poor than on reducing the income share of the very rich.

The study shows that the years of schooling and educational attainment at secondary school appear to be the main education factors reducing inequality.

The study is published in the latest issue of the academic journal, The Journal of Economic Surveys. Two of the authors are from Deakin University in Victoria.

The study states that income inequality is an important social, political, and economic issue. Inequality can affect economic growth and development, political stability, and class and ethnic tensions. The empirical literature identifies various factors that shape inequality, such as urbanization, the level of economic development, the nature of the political regime, government intervention, and land inequality. Education is also an important factor.

However, much of the empirical evidence on the effects of education on inequality is contradictory, with some studies finding that education increases inequality, while others find a negative association. The authors note that making sense out of the diverse evidence base is very difficult because of sampling errors, mis-specification biases and the possibility of selectivity in reporting of results.

To overcome these problems, the authors applied a meta-regression analysis to the results of existing studies. Although there are well over 2000 articles that investigate the relationship between education and inequality, meta-analysis requires comparable estimates. The authors selected 64 studies that met strict criteria. These studies collectively reported 885 estimates of the effects of education on inequality.

The studies included in the meta-analysis were from many countries, but nearly 80 per cent of the studies were for developed countries.

There is much income inequality in Australia. For example, the latest data from the Australian Bureau of Statistics shows that the disposable household income of those in the top 10 per cent of the population in 2011-12 was over four times that of those in the bottom ten per cent. The top 20 per cent of income earners received 40 per cent of total disposable income while the bottom income group received only 10 per cent.

The study’s findings suggest that Australia could make further progress in reducing income inequality by increasing the Year 12 completion rate, especially for disadvantaged students.

According to the latest Report on Government Services, 26 per cent of the potential Year 12 population in Australia did not complete Year 12 in 2013. However, 32 per cent of low socio-economic status (SES) students, 32 per cent of remote area students and 59 per cent of very remote area students did not complete Year 12 compared to 21 per cent of high SES students. Other data show that about 45 per cent of Indigenous students do not complete Year 12.

However, the prospects for increasing Year 12 completion rates have been set back by the refusal of the Abbott Government and several state governments to commit to the full Gonski funding plan. Full implementation of Gonski would improve secondary school outcomes and thereby help reduce income inequality. Gonski is good for greater education and income equality.

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