Does Education Affect Income Inequality? A Comparative Review of Fourteen European Countries

Abstract

For years, income inequality and its sources have remained the focus of attention of many researchers. The present article aims to expand and update the knowledge concerning the dimensions of household income inequality in European countries. The paper focuses on the association between the educational attainment and income inequality. It is hypothesised that the different level of income inequality observed in different countries can depend on the educational attainment of the society. Therefore, the main research objective of the article is to explain how the education level of the head of household affects income inequality in fourteen West-EU countries. The analysis also has two empirical aims: to assess the divergence in the mean incomes of the distinguished subgroups of households and to measure how much of the overall inequality can be attributed to the distance between these subgroups rather than to inequalities within them. To this end, the Generalised Entropy measures were applied, using the representative microdata derived from the EU Statistics on Income and Living Conditions (EU-SILC). The obtained results indicate that the education level has a significant impact on the income variability between households, with some differences between countries. The study also revealed that the higher proportion of people with the lowest level of education, the higher inter-group income differentiation. Moreover, the study demonstrates that most countries with a high proportion of well-educated people also show low levels of inequality at the bottom of the distribution. This suggests that income inequality could be controlled through the development of education.