Skinning the Cat: Education Distribution, Changes in the School Premium and Earnings Inequality

Abstract

This paper applies the procedure in JUHN ET ALL (1993) to decompose changes in income inequality over time in terms of education-related causal factors: school premiums, educational distribution and residual changes. The main conclusion is that reductions in the school premiums have systematically had a negative impact on income inequality during the last twenty years. At the same time, education has become more unequally distributed for individuals below the median labor income level and more equally distributed for those above it. The combination of the two forces has reduced income dispersion for the top half of earners, and slightly increased it among the bottom half. This difference in trends of educational distribution lies behind an apparently stable profile of income inequality (considering the whole earnings distribution).