Abstract
This study investigates whether the inequality in human capital persists among generations in the framework of overlapping generation (OLG) model. Including different expectations for return on education investment into to OLG model and assuming that an individual’s human capital is totally determined by education investment, we obtain the evolutionary pattern of inequality in education investment among successive generations and conducted numerical simulation. We find that when the rate of diminishing marginal return on education investment is low, the inequality in human capital persists in the long run and the human capital is polarized in equilibrium state. When the rate of diminishing marginal return on education investment is high, there exists convergence in human capital distribution and the inequality in human capital will disappear in the long run.
Highlights
Inequality has always been a hot issue in the field of economic and sociology research and there exists a large body of literature about the role of human capital plays in the intergenerational transmission of inequality in income and wealth (Becker and Tomes, 1979; Becker and Tomes, 1986; Becker, 1993; Solon, 1999; Mayer and Lopoo, 2005).Some scholars believe that there exists income and wealth convergence and the inequality in income and wealth will not persist in the long run
Including different expectations for return on education investment into to overlapping generation (OLG) model and assuming that an individual’s human capital is totally determined by education investment, we obtain the evolutionary pattern of inequality in education investment among successive generations and conducted numerical simulation
We find that when the rate of diminishing marginal return on education investment is low, the inequality in human capital persists in the long run and the human capital is polarized in equilibrium state
Summary
Inequality has always been a hot issue in the field of economic and sociology research and there exists a large body of literature about the role of human capital plays in the intergenerational transmission of inequality in income and wealth (Becker and Tomes, 1979; Becker and Tomes, 1986; Becker, 1993; Solon, 1999; Mayer and Lopoo, 2005). Galor and Tsiddon (1997) construct a three-period OLG model and show that the externality of family environment will lead to polarization in wealth in the early stage but the wealth distribution will eventually converge as the impact of technology advance becomes greater in the long run Another strand of literature suggests that the inequality in wealth may persist in long term because of the imperfect capital market and labor market (Banerjee and Newman, 1993; Aghion and Bolton, 1997; Mookherjee and Ray, 2003). Galor and Zeira (1993) construct classic two-period OLG model and investigate the persistence of inequality in wealth under the assumption of credit market imperfections They find that even if there is no personal capacity difference and no continuous random shock, the inequality in wealth persists in both short and long term.
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