Exploring the Impacts of Education Inequality on Income Inequality Among American States

Abstract

While education serves as a crucial determinant of personal income disparities, evidence linking education inequality to income inequality has primarily emerged from cross-country analyses. Utilizing state-level panel data aggregated from micro-level American Community Survey data, this study investigates the relationship between education inequality and income inequality within the United States. Our baseline estimation results indicate that a one-percentage-point increase in the state education Gini coefficient is associated with a corresponding rise of 0.3 percentage points in the state wage income Gini coefficient. Additionally, we address various econometric challenges, including concerns about the endogeneity of educational outcomes, and eliminate potential biases stemming from intergenerational socioeconomic connections, alternative inequality measures, and survey respondents' domestic migration. Further analysis reveals that the impact of education inequality on income disparity is comparatively weaker in states that implement higher minimum wages and a flat income tax system. Notably, the positive relationship between education inequality and income inequality remains robust, even when accounting for the economic disruptions caused by the COVID-19 pandemic.