en pl
en pl

Central European Management Journal

Show issue
Year 2016 
Volume 24 
Issue 2

Human Capital Versus Income Variations: Are They Linked in OECD Countries?

Jakub Bartak
Rzeszow University

Łukasz Jabłoński
Cracow University of Economics

2016 24 (2) Central European Management Journal

DOI 10.7206/jmba.ce.2450-7814.169

Abstract

Purpose: The theory of endogenous growth suggests a number of relations between income inequality and human capital. However, empirical evidence in this field is scarce. Therefore, in this paper we aim to demonstrate the existence of interdependencies between income inequality and human capital across OECD countries.

Methodology: We present findings of the endogenous growth theory on the mechanisms linking inequality with human capital. Subsequently, we attempt to verify these links empirically using the regression function estimated by means of the generalized method of moments (GMM). The empirical analysis is based on panel data from 1995–2010.

Findings: The results of the study reveal the existence of a negative relationship between income inequality and health indicators (infant mortality and maternal mortality). However, we did not reach an authoritative conclusion about the relationship between income inequality and quantitative indicators of educational achievement.

Research limitations: Research is limited to the sample of OECD countries. Interdependencies between income inequality and human capital could be captured more clearly using a broader sample.

Originality: This paper presents one of few studies testing the relation between human capital and income inequality. The use of high-quality empirical data on inequality (SWIID data) and the generalized method of moments made it possible to contribute new arguments to the discussion of empirical analyses of these economic categories.

References

  1. Ahluwalia, M. (1976). Inequality, poverty and development. Journal of Development Economics, 3(4): 307–342, http://dx.doi.org/10.1016/0304-3878(76)90027-4 [Google Scholar]
  2. Anand, S. and Kanbur, R. (1993). Inequality and development: A critique. Journal of Development Economics, 41: 19–43, http://dx.doi.org/10.1016/0304-3878(93)90035-l [Google Scholar]
  3. Anderson, L.R., Mellor, J.M. and Milyo, J. (2008). Inequality and public good provision: An experimental analysis. Journal of Behavioral and Experimental Economics, 37(3): 1010–1028, http://dx.doi.org/10.1016/j.socec.2006.12.073 [Google Scholar]
  4. Atkinson, A.B. (1997). Bringing income distribution in from the cold. Economic Journal, 107: 291–321, http://dx.doi.org/10.1111/1468-0297.00159 [Google Scholar]
  5. Atkinson, A. B. and Brandolini, A. (2006). On data: A case study of the evolution of income inequality across time and across countries. Cambridge Journal of Economics, 33(3): 381–404, http://dx.doi.org/10.1093/cje/bel013 [Google Scholar]
  6. Atkinson, A.B. and Piketty, T. (2010). Top incomes over the Twentieth Century: A Global Perspective (Volume 2). Oxford: Oxford University Press. [Google Scholar]
  7. Atkinson, A.B., Piketty and T., Saez, E. (2011). Top incomes in the long run of history. Journal of Economic Literature, 49(1): 3–71, http://dx.doi.org/10.1257/jel.49.1.3 [Google Scholar]
  8. Barro, R.J. (1999). Inequality, growth and investment. NBER Working Paper, 7038, http://dx.doi.org/10.3386/w7038 [Google Scholar]
  9. Barro, R.J. and Lee, J.W. (2013). A new data set of educational attainment in the world, 1950-2010. Journal of Development Economics, 104: 184–198, http://dx.doi.org/10.1016/j.jdeveco.2012.10.001 [Google Scholar]
  10. Bartak, J. (2015). Wpływ nierówności dochodowych na akumulację kapitału ludzkiego - ujęcie teoretyczne. Nierówności społeczne a wzrost gospodarczy, 41(1/2015): 329–339. [Google Scholar]
  11. Battisti, M., Fioroni, T. and Lavezzi, A.M. (2014). World interest rates, inequality and growth: An empirical analysis of the Galor-Zeira model. University of Pisa Discussion Paper, University of Pisa, no. 2014/184. [Google Scholar]
  12. Becker, G.S. (1962). Investment in human capital: A theoretical analysis. Journal of Political Economy, 70(5), part 2: 9–49, http://dx.doi.org/10.1086/258724 [Google Scholar]
  13. Becker, G.S. (1964). Human capital: A theoretical and empirical analysis, with special reference to education. Chicago: University of Chicago Press. [Google Scholar]
  14. Becker, G.S., Murphy, K.M. and Tamura, R. (1990). Human capital, fertility, and economic growth. Journal of Political Economy, 98(5), part 2: 12–37. [Google Scholar]
  15. Bell, L.A. and Freeman, R.B. (2001). The incentive for working hard: Explaining hours worked differences in the US and Germany. Labour Economics, 8(2): 181–202, http://dx.doi.org/10.3386/w8051 [Google Scholar]
  16. Benabou, R., (1996a). Heterogeneity, stratification, and growth: Macroeconomic implication of community structure and school finance. American Economic Review, 86(3): 584–609. [Google Scholar]
  17. Benabou, R., (1996b). Equity and efficiency in human capital investment: The local connection. Review of Economic Studies, 63(2): 237–264, http://dx.doi.org/10.2307/2297851 [Google Scholar]
  18. Bertrand, M. and Morse, A. (2013). Trickle-down consumption. NBER Working Paper, 18883, http://dx.doi.org/10.3386/w18883 [Google Scholar]
  19. Brzeziński, M. (2013). Income polarization and economic growth. National Bank of Poland Working Paper, 147, http://dx.doi.org/10.2139/ssrn.2244858 [Google Scholar]
  20. Cardak, B.A. (1999). Heterogeneous preferences, education expenditures and income distribution. The Economic Record, 75(1): 63–76, http://dx.doi.org/10.1111/j.1475-4932.1999.tb02434.x [Google Scholar]
  21. Chen, S. and Ravallion, M. (1997). What can new survey data tell us about recent changes in distribution and poverty? The World Bank Economic Review, 11(2): 357–382, http://dx.doi.org/10.1093/wber/11.2.357 [Google Scholar]
  22. Dahan, M. and Tsiddon, D. (1998). Demographic transition, income distribution, and economic growth. Journal of Economic Growth, 3: 29–52. [Google Scholar]
  23. de la Croix, D. and Doepke, M. (2003). Inequality and growth: Why different fertility matters. The American Economic Review, 93(4): 1091–1113, http://dx.doi.org/10.2139/ssrn.279521 [Google Scholar]
  24. Denison, E.F. (1962). The sources of economic growth in the United States and the alternatives before us. The Economic Journal, 72(288): 935–938 http://dx.doi.org/10.2307/2228363 [Google Scholar]
  25. Dollar, D. and Kraay A. (2002). Growth is good for the poor. Journal of Economic Growth, 7: 195–225. [Google Scholar]
  26. Easterly, W. (1999). Life during growth. Journal of Economic Growth, 4: pp. 239–276. [Google Scholar]
  27. Eckwert, B. and Zilcha, I. (2007). The effect of better information on income inequality. Economic Theory, 32: 287–307, http://dx.doi.org/10.1007/s00199-006-0120-8 [Google Scholar]
  28. Fernández, R. and Rogerson, R. (2003). Equity and resources: An analysis of education finance systems. The Journal of Political Economy, 111(4): 858–897, http://dx.doi.org/10.1086/375381 [Google Scholar]
  29. Foellmi, R. and Zweimüller, J. (2003). Inequality and economic growth: European versus US experiences. CESifo Working Paper Series, 1007. CESifo Group Munich. [Google Scholar]
  30. Forbes, K.J. (2000). A reassessment of the relationship between inequality and growth. American Economic Review, 90(4): 869–887, http://dx.doi.org/10.1257/aer.90.4.869 [Google Scholar]
  31. Frank, R.H., Levine, A.S. and Dijk, O. (2014). Expenditure cascades. Review of Behavioral Economics, 1(1–2): 55–73, http://dx.doi.org/10.1561/105.00000003 [Google Scholar]
  32. Galor, O. (2011). Inequality, human capital formation and the process of development. NBER Working Paper, 17058, http://dx.doi.org/10.3386/w17058 [Google Scholar]
  33. Galor, O. and Tsiddon, D. (1997). Technological progress, mobility, and economic growth. American Economic Review, 87(3): 363–382. [Google Scholar]
  34. Galor, O. and Weil, D.N. (2000). Population, technology, and growth: From malthusian stagnation to the demographic transition and beyond. American Economic Review, 90(4): 806–828, http://dx.doi.org/10.1257/aer.90.4.806 [Google Scholar]
  35. Galor, O. and Zeira, J. (1993). Income distribution and macroeconomics. Review of Economic Studies, 60(1): 35–52, http://dx.doi.org/10.2307/2297811 [Google Scholar]
  36. Glomm, G. and Ravikumar, B. (1992). Public versus private investment in human capital: Endogenous growth and income inequality. Journal of Political Economy, 100(4): 818–834, http://dx.doi.org/10.1086/261841 [Google Scholar]
  37. Ha, E. (2012). Globalization, government ideology, and income inequality in developing countries. Journal of Politics, 74(2): 541–557, http://dx.doi.org/10.1017/s0022381611001757 [Google Scholar]
  38. Hansen, L.P. (1982). Large sample properties of Generalized Method of Moments estimators. Econometrica, vol. 50: 1029–1054, http://dx.doi.org/10.2307/1912775 [Google Scholar]
  39. Havrylyshyn, O. (2008). Growth recovery in CIS countries: The minimum threshold of reform. Comparative Economic Studies, 50(1): 53–78, http://dx.doi.org/10.1057/ces.2008.5 [Google Scholar]
  40. Hoff, K. (1994). The Second Theorem of the Second Best. Journal of Public Economics, 45: 223–242, http://dx.doi.org/10.1016/0047-2727(94)90061-2 [Google Scholar]
  41. Jabłoński, Ł. (2008). Sprzężenia między kapitałem ludzkim a nierównościami w teorii wzrostu endogenicznego. Zeszyty Naukowe Uniwersytetu Ekonomicznego w Krakowie, 786: 23–42. [Google Scholar]
  42. Jabłoński, Ł. (2011). Kapitał ludzki w wybranych modelach wzrostu gospodarczego. Gospodarka Narodowa, 1–2: 81–103. [Google Scholar]
  43. Jenkins, S.P. (2015). World income inequality databases: An assessment of WIID and SWIID. The Journal of Economic Inequality: 1–43, doi: 10.1007/s10888-015-9305-3. [Google Scholar]
  44. Kołodko, G.W. (2008). Wędrujący świat. Warszawa: Prószyński i S-ka. [Google Scholar]
  45. Kuznets, S. (1955). Economic growth and income inequality. The American Economic Review, 45(1): 1–28. [Google Scholar]
  46. Leigh, A., Jencks, C., and Smeeding, T.M. (2009). Health and economic inequality. In: W. Salverda, B. Nolan and T. Smeeding (eds.), The Oxford Handbook of Economic Inequality 2009. Oxford: Oxford University Press, http://dx.doi.org/10.1093/oxfordhb/9780199606061.013.0016 [Google Scholar]
  47. Li, H., Squire, L. and Zou, H.F. (1998). Explaining International inequality and intertemporal variations in income inequality. Economic Journal, 108: 26–43, http://dx.doi.org/10.1111/1468-0297.00271 [Google Scholar]
  48. Lucas, R.E.J. (1988). On the mechanics of economic development. Journal of Monetary Economics, 22(1): 3–42. [Google Scholar]
  49. Lynch, J., Smith, G.D., Harper, S.A., Hillemeier, M., Ross, N., Kaplan, G. A. and Wolfson, M. (2004). Is income inequality a determinant of population health? Part 1. A systematic review. Milbank Quarterly, 82(1): 5–99, http://dx.doi.org/10.1111/j.0887-378x.2004.00302.x [Google Scholar]
  50. Malaga, K. (2004). Konwergencja gospodarcza w krajach OECD w świetle zagregowanych modeli wzrostu, Prace habilitacyjne, 10. Poznań: Wydawnictwo Akademii Ekonomicznej w Poznaniu. [Google Scholar]
  51. Mincer, J. (1958). Investment in human capital and personal income distribution. Journal of Political Economy, 66(4): 281–302, http://dx.doi.org/10.1086/258055 [Google Scholar]
  52. Mincer, J. (1962). On-the-job training: costs, returns, and some implications. Journal of Political Economy, vol. 70, no. 5, part 2: 50–79, http://dx.doi.org/10.1086/258725 [Google Scholar]
  53. Moss, D., Thaker, A. and Rudnick, H. (2013). Inequality and decision making: Imagining a new line of inquiry. Harvard Business School Working Paper, no. 13–099, http://dx.doi.org/10.2139/ssrn.2284341 [Google Scholar]
  54. Nikoloski, Z. (2010). Democracy and income inequality: Revisiting the long- and short-term relationship, obtained 29.11.2015 from SSRN: http://ssrn.com/abstract=1703225, http://dx.doi.org/10.2139/ssrn.1703225 [Google Scholar]
  55. Odedokun, M.O. and Round, J.I. (2001). Determinants of income inequality and its effect on economic growth: Evidence from African countries. UNU-WIDER Discussion Paper, 2001/103. [Google Scholar]
  56. OECD. (2015). OECD statistics portal, http://stats.oecd.org/WBOS/index.aspx, accessed 10.09.2015 [Google Scholar]
  57. Papageorgiou, C. and Razak, N.A.A. (2009). Inequality, human capital and development: Making the theory face the facts. MPRA Paper, 18973. [Google Scholar]
  58. Perotti, R. (1996). Growth, income distribution, and democracy: What the data say. Journal of Economic Growth, 1(2): 149–187, http://dx.doi.org/10.1007/bf00138861 [Google Scholar]
  59. Popov, V. (2000). Shock therapy versus gradualism: The end of the debate (explaining the magnitude of the transformation recession). Comparative Economic Studies, 42(1): 1–57, http://dx.doi.org/10.1057/ces.2000.1 [Google Scholar]
  60. Popov, V. (2006). Shock therapy versus gradualism reconsidered: Lessons from transition economies after 15 years of reforms. TIGER Working Paper Series, 82. [Google Scholar]
  61. Putterman, L., Romer, J.E. and Silvestre, J. (1998). Does egalitarianism have a future? Journal of Political Literature, 36: 891–902. [Google Scholar]
  62. Rajan, R.G and Zingales, L. (2006). The persistence of underdevelopment: Institutions, human capital, or constituencies? NBER Working Paper, 12093. [Google Scholar]
  63. Sarkar, J. (2008). Mortality, fertility, and persistent income inequality. Southern Economic Journal, 75(2): 332–350. [Google Scholar]
  64. Schultz, T.W. (1961). Investment in human capital. American Economic Review, 51(1): 1–17. [Google Scholar]
  65. Sequeira, T., Santos, M. and Ferreira-Lopes, A. (2014). Income inequality, TFP, and human capital. MPRA Working Paper, 55471. Munich Personal RePEc Archive. [Google Scholar]
  66. Slottje, D.J. and Raj B. (1998). Income inequality and poverty empirics: New tools and perspectives. In: D.J. Slottje and B. Raj (eds.), Income inequality, poverty, and economic welfare. Pysica-Verlag. A Springer-Verlag Company, Heidelberg, http://dx.doi.org/10.1007/978-3-642-51073-1_1 [Google Scholar]
  67. Solt, F. (2009). Standardizing the World Income Inequality Database. Social Science Quarterly, 90(2): 231–242, http://dx.doi.org/10.1111/j.1540-6237.2009.00614.x [Google Scholar]
  68. Solt, F. (2014). The standardized World Income Inequality Database, version 5.0, October 2014, http://myweb.uiowa.edu/fsolt/papers/Solt2014, accessed 8.02.2015. [Google Scholar]
  69. Solt, F. (2015). On the assessment and use of cross-national income inequality datasets, The Journal of Economic Inequality: 1–9, doi: 10.1007/s10888-015-9308-0. [Google Scholar]
  70. Stiglitz, J.E. (2010). Freefall. Jazda bez trzymanki. Warszawa: PTE. [Google Scholar]
  71. Stockhammer, E. (2013). Rising inequality as a cause of the present crisis. Cambridge Journal of Economics, 39(3): 935–958, http://dx.doi.org/10.1093/cje/bet052 [Google Scholar]
  72. Strzała, K. (2009). Panelowe testy stacjonarności – możliwości i ograniczenia. Przegląd Statystyczny, 56: 56–73. [Google Scholar]
  73. Tamura, R. (2004). Human capital and economic development. Federal Reserve Bank of Atlanta Working Papers Series, No. 2004-34. [Google Scholar]
  74. Welch, F. (1999). In defense of inequality. American Economic Review, 89(2): 1–17, http://dx.doi.org/10.1257/aer.89.2.1 [Google Scholar]

Full metadata record

Cite this record

APA style

Bartak, Jakub & Jabłoński, Łukasz (2016). Bartak, J. , & Jabłoński, Ł. . (2016). Human Capital Versus Income Variations: Are They Linked in OECD Countries?. Central European Management Journal, 24(2), 56-73. https://doi.org/10.7206/jmba.ce.2450-7814.169 (Original work published 2016)

MLA style

Bartak, Jakub and Jabłoński, Łukasz. Bartak, J. , and Ł. Jabłoński. “Human Capital Versus Income Variations: Are They Linked In Oecd Countries?”. 2016. Central European Management Journal, vol. 24, no. 2, 2016, pp. 56-73.

Chicago style

Bartak, Jakub and Jabłoński, Łukasz. Bartak, Jakub , and Łukasz Jabłoński. “Human Capital Versus Income Variations: Are They Linked In Oecd Countries?”. Central European Management Journal, Central European Management Journal, 24, no. 2 (2016): 56-73. doi:10.7206/jmba.ce.2450-7814.169.