The Effect of Education on Disposable Income Distribution

Sammanfattning: The purpose of this thesis is to  examine the education level and its role on income distribution in the member states of the European Union (EU). The data are assembled given the period between 2005 and 2009 with a cross- country data analysis. Knight & Sabot argue that high schooling level narrows income distribution, due to "wage compression". Our analysis denotes that education is an important contributor to changes in income distribution. Higher educational levels usually refer to more equal distribution, and vice versa. Also, welfare regimes role on distribution of income is an important factor. The results indicate that higher education leads o narrower income distribution between the rich and poor. It is significant without taking into account the socialdemocratic welfare regimes. This can be explained by the benefits reccieved by the unemployed citizens, whicch increase the consumption of the quartile with lower average income level. Yet, education increases the income level of the poor and decreases the income level of the higher income quartile due to the availability of more specialized labor, the "wage compression" effecct.