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On the Rise and Fall of Class Societies

  • Kiminori Matsuyama

    (Department of Economics, Northwestern University and CIRJE, Faculty of Economics, University of Tokyo)

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 gfairh 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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File URL: http://www.cirje.e.u-tokyo.ac.jp/research/dp/2002/2002cf173.pdf
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Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-173.

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Length: 45 pages
Date of creation: Sep 2002
Date of revision:
Handle: RePEc:tky:fseres:2002cf173
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  1. Piketty, Thomas, 1997. "The Dynamics of the Wealth Distribution and the Interest Rate with Credit Rationing," Review of Economic Studies, Wiley Blackwell, vol. 64(2), pages 173-89, April.
  2. Kiminori Matsuyama, 2001. "Financial Market Globalization and Endogenous Inequality of Nations," Discussion Papers 1334, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Douglas Holtz-Eakin & David Joulfaian & Harvey Rosen, 1993. "Sticking It Out: Entrepreneurial Survival and Liquidity Constraints," Working Papers 698, Princeton University, Department of Economics, Industrial Relations Section..
  4. Joseph G. Altonji & Fumio Hayashi & Laurence Kotlikoff, 1995. "Parental Altruism and Inter Vivos Transfers: Theory and Evidence," NBER Working Papers 5378, National Bureau of Economic Research, Inc.
  5. Matsuyama, Kiminori, 2000. "Endogenous Inequality," Review of Economic Studies, Wiley Blackwell, vol. 67(4), pages 743-59, October.
  6. Freeman, Scott, 1996. "Equilibrium Income Inequality among Identical Agents," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 1047-64, October.
  7. Aghion, Philippe & Bolton, Patrick, 1997. "A Theory of Trickle-Down Growth and Development," Review of Economic Studies, Wiley Blackwell, vol. 64(2), pages 151-72, April.
  8. 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.
  9. Xavier Freixas & Jean-Charles Rochet, 1997. "Microeconomics of Banking," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061937, June.
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