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Comparing Income Distributions Between Economies That Reward Innovation And Those That Reward Knowledge

In this paper, we develop an optimal control model of labor allocation in two types of economy - one economy is for innovative workers and the other one for knowledge workers. In both economies, workers allocate time between learning and discovering new knowledge. Both markets consist of a continuum of heterogeneous agents that are distinguished by their learning ability. Workers are rewarded for the knowledge they possess in the knowledge economy, and only for the new knowledge they create in the innovative economy. We show that, at steady state, while human capital accumulation is higher in the knowledge economy, the rate of knowledge creation is not necessarily higher in the innovative economy. Secondly, we prove that when the cost of learning is sufficiently high, the distribution of net wage income in the knowledge economy dominates that in the innovative economy in the first degree.

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Paper provided by School of Economics, University of Queensland, Australia in its series Discussion Papers Series with number 314.

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Date of creation: 2002
Date of revision:
Handle: RePEc:qld:uq2004:314
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  1. Alan Blinder & Yoram Weiss, 1974. "Human Capital and Labor Supply: A Synthesis," Working Papers 435, Princeton University, Department of Economics, Industrial Relations Section..
  2. Sattinger, Michael, 1975. "Comparative Advantage and the Distributions of Earnings and Abilities," Econometrica, Econometric Society, vol. 43(3), pages 455-68, May.
  3. Stiglitz, Joseph E, 1975. "The Theory of "Screening," Education, and the Distribution of Income," American Economic Review, American Economic Association, vol. 65(3), pages 283-300, June.
  4. Yoram Ben-Porath, 1967. "The Production of Human Capital and the Life Cycle of Earnings," Journal of Political Economy, University of Chicago Press, vol. 75, pages 352.
  5. Jacob Mincer, 1994. "The Production of Human Capital and the Lifecycle of Earnings: Variations on a Theme," NBER Working Papers 4838, National Bureau of Economic Research, Inc.
  6. Sahota, Gian Singh, 1978. "Theories of Personal Income Distribution: A Survey," Journal of Economic Literature, American Economic Association, vol. 16(1), pages 1-55, March.
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