Duality in human capital accumulation and inequality in income distribution

Abstract

In view of the dualities in human capital and the inequality of income and wealth distribution that exist in general and, more conspicuously, in the third world, this paper puts forth a strategic choice model to analyze how such dualities and inequality are strengthened and sustained over time. Ignoring inertia, we argue that this is the outcome of strategic choices made by individual agents on how much human capital to accumulate as an endogenous response to technological innovations. Our analysis takes account of the fact that the various qualities of human capital are complementary to the productivity of each other, hence turning human capital accumulation by the rich and the poor into choices that exhibit strategic complementarities. Such complementarities could potentially increase the productivity of labor at its micro and macro levels, promote growth, and contribute to reducing inequality in income distribution. The model explains why the dualities in human capital arise through such choices and why such dualities get worse with economic growth if it is accompanied by inflation unless the cost of education facing the poor is reined in. The analysis is extended to explain how the dualities in health capital mirror those in human capital. We also argue in favor of the plausible multiplier effects that the human capital accumulation and ensuing innovations may trigger further endogenous growth. Finally, the analysis invites a debate in regard to the type and level of education and policy objectives that will meet the need of the technology of the time.