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Social Status

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  • Chaim Fershtman

Abstract

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.

Suggested Citation

  • Chaim Fershtman, 1993. "Social Status," Discussion Papers 1054, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  • Handle: RePEc:nwu:cmsems:1054
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    File URL: http://www.kellogg.northwestern.edu/research/math/papers/1054.pdf
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    1. Gary S. Becker & Kevin M. Murphy, 1994. "The Division of Labor, Coordination Costs, and Knowledge," NBER Chapters,in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education (3rd Edition), pages 299-322 National Bureau of Economic Research, Inc.
    2. Gary S. Becker & Kevin M. Murphy & Robert Tamura, 1994. "Human Capital, Fertility, and Economic Growth," NBER Chapters,in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education (3rd Edition), pages 323-350 National Bureau of Economic Research, Inc.
    3. Kevin M. Murphy & Andrei Shleifer & Robert Vishny, 1989. "Income Distribution, Market Size, and Industrialization," The Quarterly Journal of Economics, Oxford University Press, vol. 104(3), pages 537-564.
    4. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Oxford University Press, vol. 60(1), pages 35-52.
    5. Abhijit V. Banerjee & Andrew F. Newman, 1990. "Occupational Choice and the Process of Development," Discussion Papers 911, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    6. 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.
    7. Yoram Weiss, 1973. "The Wealth Effect in Occupational Choice," Working Papers 424, Princeton University, Department of Economics, Industrial Relations Section..
    8. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1991. "The Allocation of Talent: Implications for Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 503-530.
    9. 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 274-298, April.
    10. 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.
    11. Weiss, Y. & Fershtman, C., 1991. "On the Stability of Occupational Rankings," Papers 33-91, Tel Aviv.
    12. Fershtman, Chaim & Weiss, Yoram, 1993. "Social Status, Culture and Economic Performance," Economic Journal, Royal Economic Society, vol. 103(419), pages 946-959, July.
    13. Elster, Jon, 1989. "Social Norms and Economic Theory," Journal of Economic Perspectives, American Economic Association, pages 99-117.
    14. 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.
    15. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, pages 3-42.
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    Cited by:

    1. Carillo Maria Rosaria, 2000. "The Effect of Professionalisation and the Demand for Social Status on the Adoption of New Technologies," Rivista italiana degli economisti, Società editrice il Mulino, pages 473-502.
    2. Cardoso, Ana Rute, 2005. "Big Fish in Small Pond or Small Fish in Big Pond? An Analysis of Job Mobility," IZA Discussion Papers 1900, Institute for the Study of Labor (IZA).
    3. Alberto Chong & Jorge Guillen & Vanessa Rios, 2010. "Language nuances, trust and economic growth," Public Choice, Springer, vol. 143(1), pages 191-208, April.
    4. Carillo Maria Rosaria, 2000. "The Effect of Professionalisation and the Demand for Social Status on the Adoption of New Technologies," Rivista italiana degli economisti, Società editrice il Mulino, pages 473-502.
    5. Fershtman, Chaim & Hvide, Hans K & Weiss, Yoram, 2003. "Cultural Diversity, Status Concerns and the Organization of Work," CEPR Discussion Papers 3982, C.E.P.R. Discussion Papers.

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