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Income Inequality in a Job-Search Model With Heterogeneous Discount Factors

Author

Listed:
  • Rubens Penha Cysne

    (FGV)

Abstract

This paper investigates the income inequality generated by a job-search process when different cohorts of homogeneous workers are allowed to have different degrees of impatience. Using the fact the average wage under the invariant Markovian distribution is a decreasing function of the discount factor (Cysne 2004, 2006), I show that the Lorenz curve and the between-cohort Gini coefficient of income inequality can be easily derived in this case. An example with arbitrary measures regarding the wage offers and the distribution of time preferences among cohorts provides some insights into how much income inequality can be generated, and into how it varies as a function of the probability of unemployment and of the probability that the worker does not find a job offer each period.

Suggested Citation

  • Rubens Penha Cysne, 2006. "Income Inequality in a Job-Search Model With Heterogeneous Discount Factors," Economia, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics], vol. 7(2), pages 217-224.
    • Handle: RePEc:anp:econom:v:7:y:2006:i:2:p:217-224
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    References listed on IDEAS

    as
    1. Pissarides, Christopher A, 1974. "Risk, Job Search, and Income Distribution," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1255-1267, Nov.-Dec..
    2. Cysne, Rubens Penha, 2006. "On The Positive Correlation Between Income and Patience," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 60(1), January.
    3. Cysne, Rubens Penha, 2004. "A search-theoretic explanation for the negative correlation between labor income and impatience," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 558, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    4. J. J. McCall, 1970. "Economics of Information and Job Search," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(1), pages 113-126.
    5. Dale T. Mortensen & Christopher A. Pissarides, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(3), pages 397-415.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

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    3. Araújo, Fabio & Issler, João Victor & Fernandes, Marcelo, 2006. "A stochastic discount factor approach to asset pricing using panel data," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 628, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    4. Lima, Luiz Renato & Gaglianone, Wagner Piazza & Sampaio, Raquel M.B., 2008. "Debt ceiling and fiscal sustainability in Brazil: A quantile autoregression approach," Journal of Development Economics, Elsevier, vol. 86(2), pages 313-335, June.
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    6. Flôres Junior, Renato Galvão, 2006. "Dois ensaios sobre diversidade cultural e o comércio de serviços," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 622, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    7. Lima, Luiz Renato & Néri, Breno Pinheiro, 2007. "Comparing Value-at-Risk Methodologies," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 27(1), May.

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    Keywords

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    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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