it is common to see increasing returns to human capital in a wellfunctioning labour market acemoglu although the trend to rapid economic growth could enlarge the income gaps between welleducated and less welleducated workers policies cannot be proposed to stop that trend returns to human capital explain about oneseventh of total income inequality among urban households in both years and is the largest contributor to income inequality in and the thirdlargest in table the best policy here should be to equalise the opportunities for human capital accumulation rather than to undermine returns to human capital on the one hand the unemployed and those laid off can find work and earn money in the informal sector this employment effect could reduce overall income inequality by increasing the incomes of lowincome groups