Returns to education as a source of inequality: The role of regulative and redistributive policies for rising education premiums

Klaus Armingeon

Institute of Political Science, University of Bern,

David Weisstanner

Institute of Political Science, University of Bern,


How can we explain cross-country developments of “education premiums”, i.e. wage differences between high-educated and low-educated workers? We show that education premiums are one important aspect of economic inequality. In particular, education premiums closely track top-end wage inequality and top income shares. We argue that two sets of policies are key for the variation in education premiums: Regulation and redistribution. (a) Regulative labour market policies imply the institutionalization of floor and ceiling effects in the wage-setting system, limiting market effects for those at the bottom and at the top of the education hierarchy. (b) Redistributive welfare state policies increase the bargaining power of low-educated workers by providing outside options to the labour market, while taxation compresses high-educated workers’ wages. The analysis is based on a new dataset on education premiums constructed from LIS and EU-SILC income surveys, covering 35 countries in the period 1980-2013. For a subset of 17 core OECD countries, we show that long-term trends in education premiums are well explained by a combination of regulative and redistributive policies. Where regulative policies are weak, education premiums increased. Where redistributive policies are strong, education premiums held steady or declined.


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