Group Inequality

Journal of the European Economic Association, Forthcoming

25 Pages Posted: 12 Sep 2013

See all articles by Samuel Bowles

Samuel Bowles

Santa Fe Institute; University of Massachusetts

Glenn C. Loury

Brown University - Department of Economics; Brown University - Watson Institute for International and Public Affairs

Rajiv Sethi

Columbia University, Barnard College - Department of Economics; Santa Fe Institute

Date Written: December 5, 2012

Abstract

We explore the combined effect of segregation in social networks, peer effects, and the relative size of a historically disadvantaged group on the incentives to invest in market-rewarded skills and the dynamics of inequality between social groups. We identify conditions under which group inequality will persist in the absence of differences in ability, credit constraints, or labor market discrimination when segregation is sufficiently great. Under these conditions, group inequality may be amplified if initial group differences are negligible. Increases in social integration may destabilize an unequal state and make group equality possible, but the distributional and human capital effects of this depend on the demographic composition of the population. When the size of the initially disadvantaged group is sufficiently small, integration can lower the long run costs of human capital investment in both groups and result in an increase the aggregate skill share. In contrast, when the initially disadvantaged group is large, integration can induce a fall in the aggregate skill share as the costs of human capital investment rise in both groups. We consider applications to concrete cases and policy implications.

Keywords: Segregation, Demography, Networks, Group Inequality, Human Capital

JEL Classification: D31, Z13, J71

Suggested Citation

Bowles, Samuel and Loury, Glenn C. and Sethi, Rajiv, Group Inequality (December 5, 2012). Journal of the European Economic Association, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2324159

Samuel Bowles

Santa Fe Institute ( email )

1399 Hyde Park Rd
Santa Fe, NM 87501
United States
505-984-8800 (Phone)
505-982-0565 (Fax)

HOME PAGE: http://www.santafe.edu

University of Massachusetts ( email )

Amherst, MA 01002
United States
413-545-2590 (Phone)

HOME PAGE: http://www-unix.oit.umass.edu/~bowles/

Glenn C. Loury

Brown University - Department of Economics ( email )

64 Waterman Street
Providence, RI 02912
United States

Brown University - Watson Institute for International and Public Affairs ( email )

111 Thayer Street
Box 1970
Providence, RI 02912-1970
United States

Rajiv Sethi (Contact Author)

Columbia University, Barnard College - Department of Economics ( email )

3009 Broadway
New York, NY 10027
United States
212-854-5140 (Phone)

HOME PAGE: http://www.columbia.edu/~rs328/

Santa Fe Institute

1399 Hyde Park Road
Santa Fe, NM 87501
United States

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