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Long Run Growth and Income Distribution in an Olg Model With Strategic Job-Seeking and Credit Rationing

In the human capital literature, it is usually assumed that human capital is paid according to its marginal productivity. Nevertheless, in the real world labor compensation is linked to a fixed hierarchy due to the division and labor organization. Access to privileged positions in the hierarchy depends on schooling credentials, which in turn are a function of individual learning abilities and of individual spending in education. People compete in education in order to achieve the best job positions: positional competition is like a rent-seeking activity, based on the different levels of credentials. In this paper, a simple OLG economy with two agents and two kind of jobs is modeled, and the strategic solutions are analyzed. The model shows different outcomes depending on the hypotheses regarding the type of strategic interaction (sequential or simultaneous) and the characteristics of the capital market. In the sequential equilibrium, the presence of credit market imperfections and risk-aversion makes the asymptotic wealth distribution dependent on initial conditions (non ergodicity). In the simultaneous equilibrium, a non monotonic relationship between income inequality and long run growth is shown; in the long run, job allocation is mainly determined by the innate learning abilities and it is unrelated to the initial wealth distribution (ergodicity).

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Paper provided by Dipartimento Scienze Economiche, Universita' di Bologna in its series Working Papers with number 331.

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Date of creation: Dec 1998
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Handle: RePEc:bol:bodewp:331
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  1. Berry, S Keith, 1993. "Rent-Seeking with Multiple Winners," Public Choice, Springer, vol. 77(2), pages 437-43, October.
  2. Fershtman, C. & Murphy, K.M., 1993. "Social Status, Education and Growth," Papers 8-93, Tel Aviv.
  3. Galor, O. & Tsiddon, D., 1996. "Technological Progress, Mobility and Economic Growth," Papers 13-96, Tel Aviv.
  4. Linster, Bruce G, 1993. "Stackelberg Rent-Seeking," Public Choice, Springer, vol. 77(2), pages 307-21, October.
  5. De Gregorio, Jose, 1996. "Borrowing constraints, human capital accumulation, and growth," Journal of Monetary Economics, Elsevier, vol. 37(1), pages 49-71, February.
  6. José De Gregorio & Se-Jik Kim, 1998. "Credit Markets with Differences in Abilities: Education, Distribution, and Growth," Documentos de Trabajo 42, Centro de Economía Aplicada, Universidad de Chile.
  7. Steve J. Davis & John Haltiwanger, 1991. "Wage Dispersion Between and Within U.S. Manufacturing Plants, 1963-1986," NBER Working Papers 3722, National Bureau of Economic Research, Inc.
  8. R. Orsini, 1998. "The Labour Market As A Job-Seeking Contest: Human Capital, Intergenerational Mobility, and Growth," Working Papers 332, Dipartimento Scienze Economiche, Universita' di Bologna.
  9. Glomm, Gerhard & Ravikumar, B, 1992. "Public versus Private Investment in Human Capital Endogenous Growth and Income Inequality," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 818-34, August.
  10. Galor, Oded & Zeira, Joseph, 1988. "Income Distribution and Macroeconomics," MPRA Paper 51644, University Library of Munich, Germany, revised 01 Sep 1989.
  11. Andrew Weiss, 1995. "Human Capital vs. Signalling Explanations of Wages," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 133-154, Fall.
  12. Checchi, Daniele & Ichino, Andrea & Rustichini, Aldo, 1996. "More Equal but Less Mobile? Education Financing and Intergenerational Mobility in Italy and in the United States," CEPR Discussion Papers 1496, C.E.P.R. Discussion Papers.
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