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Inequality and Markets: Some Implications of Occupational Diversity

  • Dilip Mookherjee
  • Debraj Ray

This paper studies income distribution in an economy with borrowing constraints. Parents leave both financial and educational bequests; these determine the occupational choices of children. Occupational returns are determined by market conditions. If the span of occupational investments is large, long-run wealth distributions display persistent inequality. With a "rich" set of occupations, so that training costs form an interval, the distribution is unique and the average return to education must rise with educational investment. This finding contrasts with the usual presumption of diminishing returns to human capital. It is the central testable proposition of this paper. (JEL D14, D31, J24)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/mic.2.4.38
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Article provided by American Economic Association in its journal American Economic Journal: Microeconomics.

Volume (Year): 2 (2010)
Issue (Month): 4 (November)
Pages: 38-76

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Handle: RePEc:aea:aejmic:v:2:y:2010:i:4:p:38-76
Note: DOI: 10.1257/mic.2.4.38
Contact details of provider: Web page: https://www.aeaweb.org/aej-micro
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  1. Claustre Bajona & Timothy J. Kehoe, 2006. "Trade, Growth, and Convergence in a Dynamic Heckscher-Ohlin Model," NBER Working Papers 12567, National Bureau of Economic Research, Inc.
  2. Becker, Gary S & Tomes, Nigel, 1986. "Human Capital and the Rise and Fall of Families," Journal of Labor Economics, University of Chicago Press, vol. 4(3), pages S1-39, July.
  3. Dan Bernhardt & Huw Lloyd-Ellis, 1993. "Enterprise, Inequality and Economic Development," Working Papers 893, Queen's University, Department of Economics.
  4. Galor, Oded & Zeira, Joseph, 1988. "Income Distribution and Macroeconomics," MPRA Paper 51644, University Library of Munich, Germany, revised 01 Sep 1989.
  5. Freeman, Scott, 1996. "Equilibrium Income Inequality among Identical Agents," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 1047-64, October.
  6. Jagadeesh Gokhale & Laurence J. Kotlikoff & James Sefton & Martin Weale, 1999. "Simulating the Transmission of Wealth Inequity via Bequests," NBER Working Papers 7183, National Bureau of Economic Research, Inc.
  7. Chiara Binelli, 2008. "Returns to Education and Increasing Wage Inequality in Latin America," Working Paper Series 30-08, The Rimini Centre for Economic Analysis, revised Jan 2008.
  8. Ljungqvist, Lars, 1993. "Economic underdevelopment : The case of a missing market for human capital," Journal of Development Economics, Elsevier, vol. 40(2), pages 219-239, April.
  9. 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.
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