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The U‐Shape of Income Inequality over the 20th Century: The Role of Education *
Author(s) -
Prettner Klaus,
Schaefer Andreas
Publication year - 2021
Publication title -
the scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/sjoe.12424
Subject(s) - economics , inequality , inheritance (genetic algorithm) , overlapping generations model , economic inequality , differential (mechanical device) , labour economics , social inequality , income inequality metrics , demographic economics , class (philosophy) , income distribution , social class , higher education , economic growth , market economy , biology , mathematical analysis , biochemistry , mathematics , artificial intelligence , gene , computer science , engineering , aerospace engineering
We propose an overlapping generations model with three social classes to investigate the effects of higher education on the evolution of inequality. Initially, no social class invests in higher education, and inequality is driven by wealth accumulation/bequests. Once the rich surpass a certain income threshold, they invest in higher education and their children's incomes start to grow faster. Over time, the middle class and, potentially, the poor follow suit. Overall, this framework provides a candidate explanation for (i) the U‐shaped evolution of income inequality, (ii) the fall and rise of inheritance flows, and (iii) differential investments in higher education.