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Human Capital Inequality with Subsistence Consumption

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  • Yu Murayama

    (Oita University)

Abstract

This paper analyzed the evolution of human capital inequality in an overlapping generations model that incorporates Stone–Geary preferences with subsistence consumption. Many studies have revealed an inverted U-shaped relationship between human capital inequality and economic development, namely the human capital Kuznets curve. However, this curve is inconsistent with empirical evidence in a US context, where the data suggest a U-shaped evolution of earnings inequality. We show that the utility function has an increasing elasticity of substitution, and the time allocated to human capital investment decreases in the early stages of human capital accumulation and increases afterward. Thus, we obtain a U-shaped curve for human capital inequality if the elasticity of substitution is large. Eventually, decreasing returns to human capital accumulation reduce inequality.

Suggested Citation

  • Yu Murayama, 2022. "Human Capital Inequality with Subsistence Consumption," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 13(3), pages 2127-2137, September.
    • Handle: RePEc:spr:jknowl:v:13:y:2022:i:3:d:10.1007_s13132-021-00807-9
    DOI: 10.1007/s13132-021-00807-9
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    References listed on IDEAS

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    More about this item

    Keywords

    Human capital; Inequality; Stone–Geary preferences;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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