Education, Human Capital Structure And Income Gap

Considering that the current domestic existing research on human capital are mostly concentrated on the role of total human capital on economic growth and income gap, that is to say, human capital is regarded as homogeneous, but the role of human capital structure is neglected, this paper attempts to investigate from the perspective of human capital the impact of human capital structure on income gap. We first analyze the current situation of income gap and education in China, and point out that the interrelation between education and income gap. Then we study in theory the role of human capital structure on income gap. This paper extends the model of Galor and Zeira (1993), under the assumption of credit markets' imperfections, individual can decide based on the size of his/her initial wealth whether to invest in education and what kind of education to invest. The result of choice would affect the type of labor he/she would be in the next period and ultimately affect income gap. The results of model analysis show that reducing the cost of basic education will reduce the number of lower income group and improve the income distribution of medium income group and upper income group. Finally, from empirical point of view, we analyze with the statistic data of Fujian province the short-and long-term effects of higher education, secondary education and primary education on income gap. This paper uses conintegration test and error correction model to study the interrelation of urban-rural income gap and human capital in three levels of education. It is shown that in the long term higher education will go against the reduction of urban-rural income gap, on the contrary, primary education in the long run will narrow the income gap between urban and rural areas. In order to further observe the role of primary education, the paper introduces the variable of nine-year compulsory education. Using the same cointegration analysis, we find that in the short term, higher education and compulsory education are conducive to reducing urban-rural income gap, while secondary education will expand the income gap; In the long run, higher education and secondary education are not favorable for narrowing the income gap, only compulsory education plays a significant role in reducing the income gap between urban and rural areas.