The Unassuming Economist

From a paper by Xiaoshan Hu, Guanghua Wan, and Congmin Zuo:

“Education has long been perceived as a “great equalizer”, but even with universal rises in schooling years, income distribution worsened world-wide. We propose a method for decomposing the contribution of a variable to the change in inequality into three components: the mean, the dispersion, and the price components. The proposed method is then used to investigate the roles of the education variable in driving down China’s wage inequality between 2010 and 2018. We find that (1) education accounted for over 30% of total wage inequality in 2010 and 2018; (2) 70% of the overall decline in wage inequality from 2010 to 2018 can be attributed to education development, and (3) the 70% inequality-reducing effect was made up of 95% benign dispersion and price components and 25% malign mean component. The benign components are attributable to an improvement in educational equity and a decrease in the college premium.”