Abstract:
This paper explores the impact of education expansion on structural transformation and income inequality in Indonesia, contextualized within the Kuznetsian framework of economic development. Using a natural policy experiment from the 1978-1979 extension of the school year, we apply a regression discontinuity design (RDD) to establish the causal relationship between increased education and labour shifts from agriculture to non-agricultural sectors. Additionally, we employ the recentred influence function (RIF) Oaxaca-Blinder decomposition and the Atkinson inequality decomposition to assess how education expansion contributes to both within-sector and between-sector income inequality. Our findings suggest that while education expansion facilitates structural transformation, it also has complex implications for inequality, particularly within modern sectors.