Generating Extreme Inequality: Schooling, Earnings, and Intergenerational Transmission of Human Capital in South Africa and Brazil. Research Report.

Large household surveys are used to analyze links between schooling inequality and earnings inequality in Brazil and South Africa, countries that have long had among the highest levels of income inequality in the world. The studies were the 1995 South African October Household Survey (32,000 households) and the 1995 Brazilian Pesquisa Nacional de Amostra de Domicilios (about 85,000 households). Although the countries have similar earnings inequality, South Africa has much lower inequality in schooling. The contribution of schooling to earnings inequality is very similar in the two countries, however, due to the convex relationship between schooling and earnings. If the countries traded schooling distributions or returns to schooling, there would be little effect on earnings inequality. Both countries demonstrate strong relationships between parents' schooling and children's schooling, a key component of the intergenerational transmission of inequality. It is significant, however, that the penalty for having poorly educated parents is much smaller in South Africa. The results suggest that even large improvements in schooling maybe associated with inertia in earnings inequality in developing countries. (Contains 6 tables, 8 figures, and 18 references.) (Author/SLD)