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We argue that previous analyses of skills and inequality have been limited due to their binary focus on skilled versus unskilled labour. Using country-level data on earnings and qualification levels to show that income increases when there is a smaller proportion skilled to a particular level, we suggest that income inequality can be reduced by improving the match between the supply and demand of skills. Particular challenges of China and India in this context involve scale, rapid growth and the size of the informal sector. Useful future research areas include developing a better measure of demand and determining mechanisms for matching supply with demand.

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