Education, Wage Inequality and Growth

Kirill Borissov and Stéphane Lambrecht

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Abstract: We model a successive-generation economy in which parents, motivated by fam- ily altruism, decide to nance or not their o spring's capital accumulation on the basis of their altruistic motive, their own income and the equilibrium ratio between skilled-labor and unskilled-labor wages. The question we ask is how the growth process in this economy shapes the wage inequality and the split of the population in two classes. We study the transitional dynamics of human capital accumulation and of wage inequality. First, we prove the existence of equilibrium paths. Then we show that there exists a continuum of steady-state equilibria and prove the convergence of each equilibrium path to one of the steady-state equilibrium. Also we look at the relationship between inequality and output on the set of steady states and nd that this relationship is ambigu- ous. Finally, we deal with an endogenous-growth version of our model, which displays the ambiguous relationship between inequality and the rate of growth

Date: 2011-11-18
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