Industrial Insight

Schooling doesn’t make us richer, we get more school when we are rich… | April 12, 2013

http://www.voxeu.org/article/income-and-schooling

Income and schooling

Markus Brückner, Mark Gradstein, 4 April 2013

Countries’ average income per capita is strongly correlated with more schooling. This can be seen both by looking at the relationship between them across countries (Figure 1), and by considering their evolution over time in particular countries. For example, the percentage of the population in the US with at least a college degree rose from around 10% in the early 1960s to almost 30% in the early 2000s, while annual real GDP per capita in the same period grew from under $20,000 to over $40,0001.

These observations suggest several possible interpretations:

  • One, favoured in earlier works, is that human capital generated through schooling spurs economic growth and creates prosperity (see Barro 1991, Barro and Sala-i-Martin 1995, Benhabib and Spiegel 1994, De la Fuente and Domenech 2006, Hanushek and Kimko 2000);
  • An alternative interpretation, suggested by Bils and Klenow (2000), maintains that increased schooling is mainly caused by growth in per capita income.

Our results suggest that a large part of the correlation between national incomes and schooling attainment should be attributed to the causal effect of economic prosperity on the formation of human capital via schooling. While not entirely refuting a reverse causal link, they indicate that it is secondary to the effect of incomes on schooling.

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