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On the Rise and Fall of Class Societies

  • Kiminori Matsuyama

This paper develops a theoretical framework to understand mechanisms behind the rise and fall of class societies. The dynamics is described by the joint evolution of the wage rate, the vertical division of labor between employers and workers, and the distribution of household wealth. The model is simple enough to allow for a complete characterization of the steady states. For some parameter values, the model predicts the rise of class societies, where the households are permanently separated into the two classes in any steady state. The rich bourgeoisie maintain a high level of wealth due to the presence of the poor proletariat, which has no choice but to work at a wage rate strictly lower than the "fair" value of labor. For other parameter values, the model predicts the fall of class societies, where job creation by the rich employers pushes up the wage rate so much that the workers will escape from the poverty and eventually catch up with the rich. Thus, the wealth created by the rich trickles down to the poor, and, in the steady state, the inequality disappears. As an application, this framework is used to study the effects of self-employment, which provides the poor with an alternative to working for the rich, and at the same time, provides the rich with an alternative to the job creating investment, which could benefit the poor.

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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 1326.

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Date of creation: Sep 2001
Date of revision:
Handle: RePEc:nwu:cmsems:1326
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  1. Joseph G. Altonji & Fumio Hayashi & Laurence Kotlikoff, . "Parental Altruism and Inter Vivos Transfers: Theory and Evidence," IPR working papers 95-22, Institute for Policy Resarch at Northwestern University.
  2. Kiminori Matsuyama, 2000. "Financial Market Globalization and Endogenous Inequality of Nations," Discussion Papers 1300, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. repec:bla:restud:v:64:y:1997:i:2:p:173-89 is not listed on IDEAS
  4. repec:bla:restud:v:64:y:1997:i:2:p:151-72 is not listed on IDEAS
  5. Kiminori Matsuyama, 1998. "Endogenous Inequality," Discussion Papers 1238, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Douglas Holtz-Eakin & David Joulfaian & Harvey S. Rosen, 1993. "Sticking it Out: Entrepreneurial Survival and Liquidity Constraints," NBER Working Papers 4494, National Bureau of Economic Research, Inc.
  7. 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.
  8. Xavier Freixas & Jean-Charles Rochet, 1997. "Microeconomics of Banking," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061937, June.
  9. Freeman, Scott, 1996. "Equilibrium Income Inequality among Identical Agents," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 1047-64, October.
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