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Group Inequality

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  • Samuel Bowles
  • Glenn C. Loury
  • Rajiv Sethi

Abstract

We explore the combined effect of segregation in social networks, peer effects, and the relative size of a historically disadvantaged group on the incentives to invest in market-rewarded skills and the dynamics of inequality between social groups. We identify conditions under which group inequality will persist in the absence of differences in ability, credit constraints, or labor market discrimination. Under these conditions, group inequality may be amplified even if initial group differences are negligible. Increases in social integration may destabilize an unequal state and make group equality possible, but the distributional and human capital effects of this depend on the demographic composition of the population. When the size of the initially disadvantaged group is sufficiently small, integration can lower the long-run costs of human capital investment in both groups and result in an increase the aggregate skill share. In contrast, when the initially disadvantaged group is large, integration can induce a fall in the aggregate skill share as the costs of human capital investment rise in both groups. We consider applications to concrete cases and policy implications.

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  • Samuel Bowles & Glenn C. Loury & Rajiv Sethi, 2014. "Group Inequality," Journal of the European Economic Association, European Economic Association, vol. 12(1), pages 129-152, February.
    • Handle: RePEc:bla:jeurec:v:12:y:2014:i:1:p:129-152
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    2. Kim, Young Chul, 2009. "Group Reputation and the Endogenous Group Formation," MPRA Paper 18575, University Library of Munich, Germany.
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    7. Kim, Young Chul & Loury, Glenn, 2009. "Group Reputation and the Dynamics of Statistical Discrimination," MPRA Paper 18765, University Library of Munich, Germany.
    8. Jane Glover, 2010. "Capital Usage in Adverse Situations: Applying Bourdieu’s Theory of Capital to Family Farm Businesses," Journal of Family and Economic Issues, Springer, vol. 31(4), pages 485-497, December.
    9. Michael D. Carr & Arjun Jayadev, 2015. "Relative Income and Indebtedness: Evidence from Panel Data," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 61(4), pages 759-772, December.
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    14. Kevin Lang & Jee-Yeon K. Lehmann, 2012. "Racial Discrimination in the Labor Market: Theory and Empirics," Journal of Economic Literature, American Economic Association, vol. 50(4), pages 959-1006, December.
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    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification
    • J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing

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