Inequality Decomposition by Educational Level: an Aplication on the Main Metropolitan Regions in Brazil

Assis, Rodrigo Salvato de (2011). "Inequality Decomposition by Educational Level: an Aplication on the Main Metropolitan Regions in Brazil" Paper presented at the 8th annual conference of the HDCA, 6-8 September 2011, the Hague, the Netherlands.

The history of Brazilian Development is strongly connected to the income inequality problem. However, since the beginning of 2000 the country is changing the tendency. It seems that the country found, at last, the way to promote a more equitable and fair society. The national Gini index decrease from 0, 56 in 1995 to 0, 52 in 2007 and the expectations are for new reductions during the next years. Even if using a short time series, it is important to identify the main determinants of the changes in income inequality in Brazil. This paper uses the inequality decomposition approach proposed by Dagum (1997) and the capabilities approach, proposed by Amartya Sen, to examine how education is affecting the dynamics of inequality in the metropolitan regions o Brazil over the period 1998 to 2008. The idea is to separate inequality between groups, within groups and transvariation or economic affluence, as well as to examine how this impacts on people, if they really are the centre, the end of investments in education.The initial hypothesis is that increasing investments in education have positive impacts, if they help to drop income inequality. Thus, a lower income inequality within groups of schooling can be a positive impact on the Capability of people, because people with the same educational level have a less unequal income and higher returns as they increase their levels of education. According to Capability Approach, there is a double gain in investing in education, because education just by winning, people do increase their capabilities, and moreover, there is an increase in income, which provides a wider range of options for people to do what they value to be and do, further increasing their capabilities. The results show that inequality between groups and transvariation got more importance in explaining total inequality and that inequality within groups has been losing its explanatory power. These results suggest that the returns on investments in education are important to explain inequality and investment in education can contribute significantly to reduce income inequality. This fall in income inequality can lead to greater freedom to people, covering their range of choices and enriching their lives making them able to be and do what they think is important, as shown in the Capability Approach.
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