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

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  • Marcello D’Amato
  • Christian Pietro

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

Suggested Citation

  • Marcello D’Amato & Christian Pietro, 2014. "Occupational mobility and wealth evolution in a model of educational investment with credit market imperfections," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 12(1), pages 73-98, March.
    • Handle: RePEc:kap:jecinq:v:12:y:2014:i:1:p:73-98
    DOI: 10.1007/s10888-013-9244-9
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    Cited by:

    1. Marcello D’Amato & Christian Di Pietro & Marco M. Sorge, 2024. "Left and right: a tale of two tails of the wealth distribution," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 78(4), pages 1389-1433, December.
    2. Christian Pietro & Marco M. Sorge, 2018. "Stochastic dominance and thick-tailed wealth distributions," Journal of Economics, Springer, vol. 123(2), pages 141-159, March.
    3. IOVINO, Giorgia, 2017. "The Mezzogiorno Problem to be. Territorial Implications of the Reform of Tertiary Education in Italy," CELPE Discussion Papers 147, CELPE - CEnter for Labor and Political Economics, University of Salerno, Italy.

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    More about this item

    Keywords

    Heterogeneous ability; Credit market imperfections; Educational investment; Occupational choice; Intergenerational mobility; Income and wealth inequality; D31; D91; I21; J24; O15;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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