The Uncertainty of Academic Rent and Income Inequality: The OECD Panel Evidence

Abstract:

The article presents an alternative view on the education—income inequality relationship, which calls into question the neoclassical claim that education increases labor productivity and hence contributes to a higher output, wage and consequently more even income distribution. In the context of public policies, education needs to be seen not only as a factor of income mobility, but also as a “positional good,” which benefits graduates at the expense of non-graduates. Education generates “academic rent,” by which we mean uneven remuneration of workers based on academic signs of distinctions that do not necessarily reflect differences in productivity. Using the robust panel model on a sample of OECD (Organization of Economic Co-operation and Development) countries from 1980 to 2015, we show that investments in human capital lead to lower inequality, but overinvestments tends to increase income inequality, which may be related to academic rent. In discussing this result, we consider that uncertainty of academic rent under the condition of a rapid transformation of the workplace caused by the fourth industrial revolution.

Keywords::

• academic rent
• income inequality
• uncertainty
• technological changes

JEL Classification Codes::

• B52
• I24

Notes

¹ Innovation that shifts demand from less skilled workers to more educated workers.

² Constrained by a page limit, the result of this robustness test is available upon request.

Additional information

Notes on contributors

Kosta Josifidis

Kosta Josifidis is a retired full professor at the University of Novi Sad (Serbia). Novica Supic is an associate professor at the University of Novi Sad, Faculty of Economics (Serbia).

Novica Supic

Kosta Josifidis is a retired full professor at the University of Novi Sad (Serbia). Novica Supic is an associate professor at the University of Novi Sad, Faculty of Economics (Serbia).