Education as a Double-Edge Sword: Examining the Dynamics between Education Expansion and Wage Inequality in Colombia

Abstract: This paper provides a comprehensive analysis of the relationship between education and income inequality in Colombia. Using unconditional quantile regressions (UQR) this paper examines the wage returns of different education levels at various points of the wage distribution. Additionally, recentered influence function regressions (RIF) are used to explore the correlation between each education level and two inequality measures. The baseline finding is that, with the exception of higher education, education contributed to the reduction of income inequality. Further examination of three subcategories within the higher education level reveals that technical education produces similar outcomes to basic education, with diminishing returns and an increase in inequality. Moreover, while both undergraduate and postgraduate education result in a wage premium, it is only postgraduate education that is associated with a rise in inequality levels. These patterns are influenced by factors such as educational expansion, institutional reforms, labor market dynamics, and potential misallocation of high-skilled workers. The paper highlights the need for a comprehensive approach to education that addresses quality, accessibility, and alignment with labor market demands to effectively tackle inequality and promote a more equitable society.