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Skill Dynamics, Inequality and Social Policies

Author

Listed:
  • Nicolas Bauduin

    (MEDEE, Université de Lille 1, and IFRESI-CNRS.)

  • Joël Hellier

    (MEDEE, Université de Lille 1, and IFRESI-CNRS and LEN, Université de Nantes)

Abstract

Within a model where the parents make the decisions relating to their children’s education, we show that skill dynamics normally results in a sub-optimal situation involving income per capita. This derives from an under-education trap that is endogenously generated. When sub-optimality is caused by a lack of human capital at the steady state, a minimum wage or a redistribution policy makes it possible to increase output per capita and to reduce inequality because both increase the educated share of the population by raising certain households above the trap. These policies only need to be implemented over one period of time, i.e. one generation. Moreover, the sooner they are laid down, the more efficient these policies become. Finally, the income per head at the steady state is higher when individuals have naive expectations rather than when they have perfect predictions. Several simulations are performed that illustrate and corroborate these findings.

Suggested Citation

  • Nicolas Bauduin & Joël Hellier, 2006. "Skill Dynamics, Inequality and Social Policies," Working Papers 34, ECINEQ, Society for the Study of Economic Inequality.
  • Handle: RePEc:inq:inqwps:ecineq2006-34
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    File URL: http://www.ecineq.org/milano/WP/ECINEQ2006-34.pdf
    File Function: First version, 2006
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    References listed on IDEAS

    as
    1. Orazem, Peter & Tesfatsion, Leigh, 1997. "Macrodynamic Implications of Income-Transfer Policies for Human Capital Investment and School Effort," Journal of Economic Growth, Springer, vol. 2(3), pages 305-329, September.
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    3. Alan Manning, 1995. "How Do We Know That Real Wages Are Too High?," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 1111-1125.
    4. Lindert, Peter H., 2000. "Three centuries of inequality in Britain and America," Handbook of Income Distribution,in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 3, pages 167-216 Elsevier.
    5. Viaene, J.-M. & Zilcha, I., 2001. "Human Capital Formation, Income Inequality and Growth," Papers 2001-13, Tel Aviv.
    6. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, vol. 49(4), pages 843-867, June.
    7. 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, vol. 87(6), pages 1153-1189, December.
    8. Barham, Vicky & Boadway, Robin & Marchand, Maurice & Pestieau, Pierre, 1995. "Education and the poverty trap," European Economic Review, Elsevier, vol. 39(7), pages 1257-1275, August.
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    11. Nordblom, K., 2001. "Within-the-Family Education and Its Impact on Equality," Papers 2001:06, Uppsala - Working Paper Series.
    12. Piketty, Thomas, 2000. "Theories of persistent inequality and intergenerational mobility," Handbook of Income Distribution,in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 8, pages 429-476 Elsevier.
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    Cited by:

    1. N. Bauduin & N. Chusseau & J. Hellier, 2008. "Combining minimum wage and exchange rate policy to release the external constraint on growth," International Review of Applied Economics, Taylor & Francis Journals, vol. 22(3), pages 299-320.

    More about this item

    Keywords

    Education; Inequality; Minimum wage; Redistribution.;

    JEL classification:

    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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