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Social Status

  • Chaim Fershtman

A common feature of recent growth models is the existence of externalities associated with human capital. Each worker, in choosing his level of schooling or occupation, ignores the impact of his choie on future generations. Thus, in general, the level of investment in human capital is suboptimal. One possible corrective mechanism is to reward investment in human capital with social status. As recognized by sociologists, the occupational social status is an important factor in occupational choice. The paper investigates the implications of social rewards onthe edistribution of talents in society and consequently on the process of economic growth. We consider two sources of heterogeneity among workers: non wage income and ability. We find that the thrive for status may be counter productive, inducing an inefficient allocation of talent. A greater emphasis on status may induce the "wrong" individuals i.e. those with low ability and high wealth to acquire schooling, causing workers with high ability but low wealth to leave the growth enhancing occupations. This crowding ou;effect, taken alone, discourages growth. In general, growth may be enhanced by an increase in the number of workers who invest in education. However, the inefficiency in the allocation of talent persists.

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Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1054.

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Date of creation: Jul 1993
Date of revision:
Handle: RePEc:nwu:cmsems:1054
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  1. Fershtman, C. & Weiss, Y., 1991. "Social Status , Culture and Economic Performance," Papers 32-91, Tel Aviv.
  2. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-98, April.
  3. Elster, Jon, 1989. "Social Norms and Economic Theory," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 99-117, Fall.
  4. Cole, Harold L & Mailath, George J & Postlewaite, Andrew, 1992. "Social Norms, Savings Behavior, and Growth," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1092-1125, December.
  5. Weiss, Yoram, 1976. "The Wealth Effect in Occupational Choice," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 17(2), pages 292-307, June.
  6. Gary S. Becker & Kevin M. Murphy & Robert Tamura, . "Human Capital, Fertility, and Economic Growth," University of Chicago - Population Research Center 90-5a, Chicago - Population Research Center.
  7. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1989. "Income Distribution, Market Size, and Industrialization," The Quarterly Journal of Economics, MIT Press, vol. 104(3), pages 537-64, August.
  8. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1991. "The Allocation of Talent: Implications for Growth," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 503-30, May.
  9. Becker, G.S. & Murphy, K.M., 1991. "The Division of Labor, Coordination Costs, and Knowledge," University of Chicago - Economics Research Center 92-5, Chicago - Economics Research Center.
  10. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  11. Galor, Oded & Zeira, Joseph, 1988. "Income Distribution and Macroeconomics," MPRA Paper 51644, University Library of Munich, Germany, revised 01 Sep 1989.
  12. Weiss, Y. & Fershtman, C., 1991. "On the Stability of Occupational Rankings," Papers 33-91, Tel Aviv.
  13. John M. Abowd & Michael Bognanno, 1995. "International Differences in Executive and Managerial Compensation," NBER Chapters, in: Differences and Changes in Wage Structures, pages 67-104 National Bureau of Economic Research, Inc.
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