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Occupational Diversity and Endogenous Inequality

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  • Dilip Mookherjee

    ()
    (Institute for Economic Development, Boston University)

  • debraj Ray

    ()
    (New York University and Instituto de Analisis Economico (CSIC))

Abstract

A traditional view of markets is that they equalize wealth across individuals. A more recent literature suggests that markets are inherently disequalizing. A third viewpoint argues that initial history is crucial in determining whether inequalities persist or not. By constructing a theory of equilibrium investment allocation between human capital and financial assets in the presence of borrowing constraints, we address these views in a unified way. Two attributes of occupational diversity turn out to be central to our understanding: span, the range of training costs across occupations, and richness, the variety of different training costs contained within the span. The former is used to generate a necessary and sufficient condition for markets to be disequalizing, while the latter is shown to be directly connected to the question of history-dependence.

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Bibliographic Info

Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - The Institute for Economic Development Working Papers Series with number dp-142.

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Length: 36 pages
Date of creation: Jun 2005
Date of revision:
Handle: RePEc:bos:iedwpr:dp-142

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  1. Katz, L.F. & Murphy, K.M., 1991. "Changes in Relative Wages, 1963-1987: Supply and Demand Factors," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 1580, Harvard - Institute of Economic Research.
  2. Dilip Mookherjee & Debraj Ray, 2003. "Persistent Inequality," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 70(2), pages 369-393, 04.
  3. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 101(2), pages 274-98, April.
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  5. Kiminori Matsuyama, 2001. "On the Rise and Fall of Class Societies," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 1326, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Galor, Oded & Zeira, Joseph, 1988. "Income Distribution and Macroeconomics," MPRA Paper 51644, University Library of Munich, Germany, revised 01 Sep 1989.
  7. Luisa Fuster, 2000. "Capital Accumulation in an Economy with Dynasties and Uncertain Lifetimes," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(4), pages 650-674, October.
  8. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, Elsevier, vol. 22(1), pages 3-42, July.
  9. Gokhale, Jagadeesh & Kotlikoff, Laurence J. & Sefton, James & Weale, Martin, 2001. "Simulating the transmission of wealth inequality via bequests," Journal of Public Economics, Elsevier, Elsevier, vol. 79(1), pages 93-128, January.
  10. Piketty, Thomas, 1997. "The Dynamics of the Wealth Distribution and the Interest Rate with Credit Rationing," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 64(2), pages 173-89, April.
  11. Freeman, Scott, 1996. "Equilibrium Income Inequality among Identical Agents," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 104(5), pages 1047-64, October.
  12. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, Econometric Society, vol. 49(4), pages 843-67, June.
  13. Chatterjee, Satyajit, 1994. "Transitional dynamics and the distribution of wealth in a neoclassical growth model," Journal of Public Economics, Elsevier, Elsevier, vol. 54(1), pages 97-119, May.
  14. Kiminori Matsuyama, 1998. "Endogenous Inequality," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 1238, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  15. Becker, Gary S & Tomes, Nigel, 1979. "An Equilibrium Theory of the Distribution of Income and Intergenerational Mobility," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 87(6), pages 1153-89, December.
  16. Aghion, Philippe & Bolton, Patrick, 1997. "A Theory of Trickle-Down Growth and Development," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 64(2), pages 151-72, April.
  17. Dilip Mookherjee & Debraj Ray, 2002. "Is Equality Stable?," American Economic Review, American Economic Association, American Economic Association, vol. 92(2), pages 253-259, May.
  18. Dan Bernhardt & Huw Lloyd-Ellis, 1993. "Enterprise, Inequality and Economic Development," Working Papers, Queen's University, Department of Economics 893, Queen's University, Department of Economics.
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Cited by:
  1. Kim, Dong-Hyeon & Lin, Shu-Chin, 2011. "Nonlinearity in the financial development–income inequality nexus," Journal of Comparative Economics, Elsevier, vol. 39(3), pages 310-325, September.
  2. Roine, Jesper & Vlachos, Jonas & Waldenström, Daniel, 2007. "The Long-run Determinants of Inequality: What Can We Learn from Top Income Data?," Working Paper Series, Research Institute of Industrial Economics 721, Research Institute of Industrial Economics, revised 30 Apr 2008.
  3. Kim, Young Chul, 2009. "Lifetime Network Externality and the Dynamics of Group Inequality," MPRA Paper 18767, University Library of Munich, Germany.
  4. Andrea, Canidio, 2009. "The determinants of long-run inequality," MPRA Paper 25137, University Library of Munich, Germany.
  5. Guido Cozzi & Fabio Privileggi, 2009. "The fractal nature of inequality in a fast growing world: new version," Working Papers, Business School - Economics, University of Glasgow 2009_30, Business School - Economics, University of Glasgow.

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