Endogenous categorization and group inequality

Purpose - – The purpose of this paper is to analyze the impact of categorization endogeneity (CE), meant as the influence of endogenous elements (e.g. behavioral traits) in group categorization, in the persistence of group inequality. Design/methodology/approach - – The author integrates economic and sociological elements in a dynamic model of human capital accumulation by phenotypically distinct individuals. Both kinds of elements are influenced by the degree of CE. Findings - – Effect of CE in the incentive of members of dominated groups to accumulate human capital is twofold: it allows them to pass as belonging to the dominant group but, on the other hand, it reduces the social pay-off stemming from such behavior, as they may be “expelled” from the reference group by their peers. It is found that, under sufficiently low levels of discrimination, CE widens the range of values of the neighborhood effects parameter for which group inequality is stable. Originality/value - – Despite the endogeneity of categorization has been explored in other studies, this is the first one which argues that this element may underpin, under certain conditions, group inequality regarding human capital accumulation. The results presented here sheds some light on real-world issues, as the nature of neighborhood effects, the role of segregation on the maintenance of racial inequality and public policies to combat group inequality.