SFB 303 Discussion Paper No. A-445

Author: Weizsäcker, Robert K. von
Title: Educational Choice, Lifetime Earnings Inequality, and Conflicts of Public Policy
Abstract: 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, and 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.
Keywords: human capital, earnings inequalitiy, public education, distributional policy conflicts.
JEL-Classification-Number: D31, H31, I21, J18
Creation-Date: July 1994
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