Effect of human capital accumulation on income inequality

Open Access
Author:
Carter, Devon C
Area of Honors:
Economics
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
  • Jan Duras, Thesis Supervisor
  • Russell Paul Chuderewicz, Honors Advisor
  • James R. Tybout, Faculty Reader
Keywords:
  • Human capital
  • income inequality
Abstract:
Income inequality is defined as the unequal distribution of income across households or individuals within an economy. Comparisons are made between the highest earning members of society, the middle class or middle earning groups, and the poorest members to see what percentages of the nation’s income are held by these categories of individuals/households. Since 1980, the income gap between the higher and lower earning categories continues to increase in the United States, which causes concern. Some level of income inequality is expected in a capitalist economy and can have constructive influences on economic growth by providing incentives for people to be innovative and to work hard to achieve higher living standards. However, increasing income inequality is also correlated with limited mobility caused by unequal opportunities and changing incentives for the disadvantaged. It is unclear what level of inequality causes more harm than positive effects, or the consequences of rising inequality in the U.S. This paper examines the effects of human capital accumulation on increasing income inequality, specifically how the college skill premium, skill-biased technological progress, and demographic differences in the labor supply contribute to both economic growth and increasing inequality.