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The Division of Labor, Inequality and Growth

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  • Fishman, Arthur
  • Simhon, Avi

Abstract

We present a model that links the division of labor and economic growth with the division of wealth in society. When capital market imperfections restrict the access of poor households to capital, the division of wealth affects individual incentives to invest in specialization. In turn, the division of labor determines the dynamics of the wealth distribution. A highly concentrated distribution of wealth leads to a low degree of specialization, low productivity, and low wages. In that case workers are unable to accumulate enough wealth to invest in specialization. Hence, in a highly unequal society, there is a vicious cycle in which the degree of specialization, productivity and wages stay low, wealth and income inequality stays high and the economy stagnates. By contrast, greater equality increases investment in specialization and leads to a greater division of labor and higher long run development. Copyright 2002 by Kluwer Academic Publishers

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Bibliographic Info

Article provided by Springer in its journal Journal of Economic Growth.

Volume (Year): 7 (2002)
Issue (Month): 2 (June)
Pages: 117-36

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Handle: RePEc:kap:jecgro:v:7:y:2002:i:2:p:117-36

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Web page: http://www.springerlink.com/link.asp?id=102931

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  1. Moav, Omer, 2002. "Income distribution and macroeconomics: the persistence of inequality in a convex technology framework," Economics Letters, Elsevier, vol. 75(2), pages 187-192, April.
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  7. Tomes, Nigel, 1981. "The Family, Inheritance, and the Intergenerational Transmission of Inequality," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 928-58, October.
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  9. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-98, April.
  10. Romer, Paul M, 1987. "Growth Based on Increasing Returns Due to Specialization," American Economic Review, American Economic Association, vol. 77(2), pages 56-62, May.
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  12. Marvin Goodfriend & John McDermott, 1994. "Early development," Working Paper 94-02, Federal Reserve Bank of Richmond.
  13. George J. Stigler, 1951. "The Division of Labor is Limited by the Extent of the Market," Journal of Political Economy, University of Chicago Press, vol. 59, pages 185.
  14. Oded Galor & Joseph Zeira, 2013. "Income Distribution and Macroeconomics," Working Papers 2013-12, Brown University, Department of Economics.
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Citations

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Cited by:
  1. Wan, Guanghua & Lu, Ming & Chen, Zhao, 2006. "The inequality-growth nexus in the short and long run: Empirical evidence from China," Journal of Comparative Economics, Elsevier, vol. 34(4), pages 654-667, December.
  2. Ayal Kimhi, 2004. "Growth, Inequality and Labor Markets in LDCs: A Survey," CESifo Working Paper Series 1281, CESifo Group Munich.
  3. Aiyar, Shekhar & Dalgaard, Carl-Johan & Moav, Omer, 2006. "Technological Progress and Regress in Pre-Industrial Times," CEPR Discussion Papers 5454, C.E.P.R. Discussion Papers.
  4. Oded Galor & Omer Moav, 2004. "From Physical to Human Capital Accumulation: Inequality and the Process of Development," Review of Economic Studies, Wiley Blackwell, vol. 71(4), pages 1001-1026, October.
  5. Grossmann, Volker, 2008. "Risky human capital investment, income distribution, and macroeconomic dynamics," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 19-42, March.
  6. Oded Stark, 2006. "Status Aspirations, Wealth Inequality, and Economic Growth," Review of Development Economics, Wiley Blackwell, vol. 10(1), pages 171-176, 02.
  7. Muhammad Tariq MAJEED, 2010. "Inequality, Trade Openness And Economic Growth In Asia," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 10(2).
  8. Thomas Leoni & Wolfgang Pollan, 2003. "The Impact of Inequality on Economic Growth," WIFO Working Papers 211, WIFO.
  9. WANG, Zuxiang & SMYTH, Russell & NG, Yew-Kwang, 2009. "A new ordered family of Lorenz curves with an application to measuring income inequality and poverty in rural China," China Economic Review, Elsevier, vol. 20(2), pages 218-235, June.
  10. Fali Huang, 2012. "The Coevolution Of Economic And Political Development From Monarchy To Democracy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(4), pages 1341-1368, November.
  11. Oded Galor, 2009. "Inequality and Economic Development: An Overview," Working Papers 2009-3, Brown University, Department of Economics.
  12. Ming Lu & Hong Gao, 2010. "When Globalization Meets Urbanization: Labor Market Reform, Income Inequality, and Economic Growth in the People’s Republic of China," Working Papers id:3095, eSocialSciences.
  13. Raphael BAR-EL & Dafna SCHWARTZ, 2003. "Economic Growth, Inequality And Spatial Demographic Distribution: A Brazilian Case," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 18, pages 147-170.
  14. Phillips, Kerk L., 2010. "A Dynamic Model of Specialization and Market Development as Engines of Economic Growth," MPRA Paper 23500, University Library of Munich, Germany.

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