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Skill Dynamics, Inequality and Social Policies

  • 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)

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.

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File URL: http://www.ecineq.org/milano/WP/ECINEQ2006-34.pdf
File Function: First version, 2006
Download Restriction: no

Paper provided by ECINEQ, Society for the Study of Economic Inequality in its series Working Papers with number 34.

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Length: 32 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:inq:inqwps:ecineq2006-34
Contact details of provider: Web page: http://www.ecineq.org
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  1. Nordblom, K., 2001. "Within-the-Family Education and Its Impact on Equality," Papers 2001:06, Uppsala - Working Paper Series.
  2. Plug, Erik & Vijverberg, Wim P., 2001. "Schooling, Family Background, and Adoption: Does Family Income Matter?," IZA Discussion Papers 246, Institute for the Study of Labor (IZA).
  3. Jean-Marie Viaene & Itzhak Zilcha, 2001. "Human Capital Formation, Income Inequality and Growth," Tinbergen Institute Discussion Papers 01-104/2, Tinbergen Institute.
  4. 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 1153-89, December.
  5. Alan Manning, 1994. "How do we Know that Real Wages are Too High?," CEP Discussion Papers dp0195, Centre for Economic Performance, LSE.
  6. Gary S. Becker & Nigel Tomes, 1976. "Child Endowments, and the Quantity and Quality of Children," NBER Working Papers 0123, National Bureau of Economic Research, Inc.
  7. Barham, V. & Boadway, R. & Marchand, M. & Pestieau, P., . "Education and the poverty trap," CORE Discussion Papers RP -1173, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. 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 305-29, September.
  9. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, vol. 49(4), pages 843-67, June.
  10. Agell, Jonas & Lommerud, Kjell Erik, 1997. "Minimum wages and the incentives for skill formation," Journal of Public Economics, Elsevier, vol. 64(1), pages 25-40, April.
  11. Lang, Kevin & Kahn, Shulamit, 1998. "The effect of minimum-wage laws on the distribution of employment: theory and evidence," Journal of Public Economics, Elsevier, vol. 69(1), pages 67-82, July.
  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.
  13. Peter H. Lindert, . "Three Centuries Of Inequality In Britain And America," Department of Economics 97-09, California Davis - Department of Economics.
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