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RESEARCH PRODUCT

Human Capital Inequality, Life Expectancy and Economic Growth

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This article presents a model in which inequality affects per capita income when individuals decide to invest in education taking into account their life expectancy, which depends to a large extent on the human capital of their parents. Our results show the existence of multiple steady states depending on the initial distribution of education. The low steady state is a poverty trap in which children raised in poor families have low life expectancy and work as non-educated workers. The empirical evidence suggests that the life expectancy mechanism explains a major part of the relationship between inequality and human capital accumulation. Increases in life expectancy and human capital accumulation have accelerated since the post-World War II period in most parts of the world. However, in spite of the convergence in life expectancy across countries during this period (see, for example, Becker et al., 2005), in 2000 there was still an immense gap between the rich and the poor world: life expectancy was 78 years in OECD countries but only 47 years in Sub-Saharan Africa, where the gap with rich countries is increasing nowadays due to AIDS being widespread. Likewise, the striking disparities in human capital are also evident. Whereas the secondary school enrolment rate was almost 100% in rich countries, more than 70% of children in Sub-Saharan Africa were not enrolled in secondary schooling and, therefore, entered the labour market as unskilled workers from childhood. These disparities in schooling are also accompanied by huge differences in the distribution of education. Thus, the human capital Gini coefficient in Sub-Saharan Africa (0.56) is twice as high as that of OECD countries (0.21). In this article we argue that high human capital inequality, low life expectancy and low human capital accumulation rates reinforce each other and may explain the persistence of poverty in a great part of the world.