Abstract

This volume presents a collection of studies on the dynamics of income inequality based on micro data. Using a simple but powerful empirical methodology, the authors analyze the roles of prices, occupational choice, and educational choice in accounting for household income and its contribution to inequality. It casts doubt on the grand theories of growth and income inequality that have dominated discussions in development economics. It paves the way for a full-blown, micro-based general equilibrium theory of income determination and income inequality.

Highlights

  • The Zi jτ include (a) the individual’s own characteristics—an education spline8 and an age quartic—and (b) the average characteristics of other family members—their mean education entered as a quadratic; their mean age, entered as a quadratic; the fraction of family members who are female; family size; the household dependency ratio; and the location

  • For family members other than heads of households, the Zi jτ includes everything that is included for the head, plus the head’s own characteristics, plus the head’s actual occupational position

  • We present the results from the decomposition, which estimates the proportional contribution of changes in labor choice, prices, and observed and unobserved labor characteristics to the changes in income distribution

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Summary

Introduction

This book is about how the distribution of income changes during the process of economic development. The process of development is replete with structural change. The composition of economic activity changes over time, generally away from agriculture and toward industry and services. Patterns of economic behavior are not constant either: female labor-force participation rates increase, as do the ages at which children leave school and enter employment. Generations save, invest, and bequeath, and so holdings of both physical and human capital change. Change is everywhere and some patterns can be discerned across many societies, no single country ever follows exactly the same development path. The combination, sequence, and timing of changes that are observed in any given country, at any given period, are always unique, always unprecedented

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