DP1014 Educational Choice, Lifetime Earnings Inequality, and Conflicts of Public Policy

Author(s): Robert K von Weizsäcker
Publication Date: September 1994
Keyword(s): Distributional Policy Conflicts, Earnings Inequality, Human Capital, Public Education
JEL(s): D31, H31, I21, J18
Programme Areas: Human Resources
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1014

Drawing on and extending the theory of human capital, a comprehensive life-cycle model of individual earnings is designed. The approach taken permits an isolated analysis of three interconnected levels of aggregation (intra-cohort distribution, overall distribution, and lifetime distribution) within the same dynamic microeconomic model of educational choice. In this way, interrelated economic, demographic, fiscal effects on earnings inequality are established. The paper reveals that reallocation reactions of optimizing individuals, combined with population heterogeneity by productive endowments, learning abilities, and working age, can destroy simple relationships between the standard of living, current earnings inequality, lifetime earnings inequality, and public distributional policy.