Decomposing Income Inequality by Education in Romania

Ionela-Roxana PETCU – Assistant Lecturer, PhD. (
Bucharest University of Economic Studies, Bucharest, Romania


As long as education is not consolidated a sustainable society no longer grows. All components of education are of most importance when analysing their contributions to wage inequalities in Romania. Decomposition analysis is an essential tool that provides insights into the social dimension of income inequality. The current study aims to explore the role of education and its influence in the decomposition of income inequality in Romania, by using both multivariate regression-based and Theil decomposition. First, to measure the inequality in the distribution of individual income, Gini index, two Theil indices and Variance of log are used. Then, a multivariate regression-based decomposition function is applied on the dataset. As a well-known econometric measure of investigating economic inequality, due to its properties, the Theil index is employed to decompose both overall income inequality in Romania into the between and within components and furthermore by Education. The data subset relies on the UK Data Service collection – European Working Conditions Survey for 2015. The analysis reveals consistent results for the computed indices. The Theil decomposition analysis results regarding the income inequality in Romania indicate that by the attained level of education the main contributing groups to the inequality are people with medium education and high education. The group of people with high education contributed with 40% to the inequality while for Theil L. decomposition the same group contributed with 28.72%. These findings are also consistent with the fact that a higher level of education is better rewarded.

Keywords: Romania, Theil index, entropy, group inequality, decomposition
JEL Classification: C1, J7

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Romanian Statistical Review 4/2022