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On the Persistence of Inequality in the Distribution of Personal Abilities and Income

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  • Zon, Adriaan van

    (United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology)

  • Kiiver, Hannah

    (Utrecht School of Economics)

Abstract

In this paper we discuss the impact of malnutrition on the distribution of abilities and income in a simple overlapping generations framework. Workers are distributed uniformly over a low-ability and a high-ability range. If workers earn below subsistence wages, the probability that their children will have low abilities is higher than with above subsistence wages due to the malnutrition resulting from low incomes. Using a nested Ethier production function we find that there is an optimal share of low-ability workers in the economy which maximizes output. Due to the intergenerational propagation of low abilities resulting from malnutrition, economies may however get trapped in sub-optimal equilibria with too large shares of low-ability workers. Distributing food coupons financed by taxes of the parent generation to the offspring of these low-ability workers will increase the likelihood that they will be in the high-ability range, permanently increasing output for future generations. Using a numerical example, we show that this type of redistributive policy is welfare improving if the parent generation alive during the initiation of the policy is reimbursed for their loss in utility due to taxes.

Suggested Citation

  • Zon, Adriaan van & Kiiver, Hannah, 2006. "On the Persistence of Inequality in the Distribution of Personal Abilities and Income," MERIT Working Papers 2006-013, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    • Handle: RePEc:unm:unumer:2006013
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    References listed on IDEAS

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    1. Bliss, Christopher & Stern, Nicholas, 1978. "Productivity, wages and nutrition : Part I: the theory," Journal of Development Economics, Elsevier, vol. 5(4), pages 331-362, December.
    2. Dasgupta, Partha & Ray, Debraj, 1986. "Inequality as a Determinant of Malnutrition and Unemployment: Theory," Economic Journal, Royal Economic Society, vol. 96(384), pages 1011-1034, December.
    3. Dasgupta, Partha, 1991. "Nutrition, Non-convexities and Redistributive Policies," Economic Journal, Royal Economic Society, vol. 101(404), pages 22-26, January.
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    More about this item

    Keywords

    Income Distribution; Wage Differentials; Skills;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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