Occupational mobility and wealth evolution in a model of educational investment with credit market imperfections

Marcello D’Amato () and Christian Di Pietro ()
Authors registered in the RePEc Author Service: Marcello D'Amato

The Journal of Economic Inequality, 2014, vol. 12, issue 1, 73-98

Abstract: We study the implications of individual heterogeneity for occupational mobility and the evolution of wealth distribution. These issues are investigated within a model of occupational choice with credit market imperfections and local non convexities in educational investment. Whether and under which conditions private wealth accumulation leads to the elimination of the effects of credit market imperfections is also studied. In the cases where steady states feature wealth and occupational mobility we show that private wealth accumulation cannot eliminate the effects of credit market imperfections if, at any point in time, investment correlates with wealth within households in the skilled occupation. Persistence of wealth constraints in the economy with occupational mobility motivates our exploration of policies. Compared to the case of homogeneous ability, we show that heterogeneity requires more persistent policies to achieve similar results in terms of enhanced investment opportunities and income per capita. It is also shown that the scope for policies is larger under heterogeneity: policies can be effective in environments where they would fail in a world of homogeneous abilities. Copyright Springer Science+Business Media New York 2014

Keywords: Heterogeneous ability; Credit market imperfections; Educational investment; Occupational choice; Intergenerational mobility; Income and wealth inequality; D31; D91; I21; J24; O15 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s10888-013-9244-9

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