The Division of Labor, Inequality and Growth

28 Pages Posted: 17 Dec 2001

See all articles by Avi Simhon

Avi Simhon

Hebrew University of Jerusalem

Arthur Fishman

Bar-Ilan University - Department of Economics

Date Written: December 2001

Abstract

We present a model that links the division of labor and economic growth with the division of wealth in society. When capital market imperfections restrict the access of poor households to capital, the division of wealth affects individual incentives to invest in specialization. In turn, the division of labor determines the dynamics of the wealth distribution. A highly concentrated distribution of wealth leads to a low degree of specialization, low productivity, and low wages. In that case workers are unable to accumulate enough wealth to invest in specialization. Hence, in a highly unequal society, there is a vicious cycle in which the degree of specialization, productivity and wages stay low, wealth and income inequality stays high and the economy stagnates. By contrast, greater equality increases investment in specialization and leads to a greater division of labor and higher long run development.

Keywords: Division of Labor, Inequality, Economic Growth, Development

JEL Classification: O1, O4, O15

Suggested Citation

Simhon, Avi and Fishman, Arthur, The Division of Labor, Inequality and Growth (December 2001). Available at SSRN: https://ssrn.com/abstract=293880 or http://dx.doi.org/10.2139/ssrn.293880

Avi Simhon

Hebrew University of Jerusalem ( email )

Mount Scopus
Jerusalem 91905, Jerusalem 91905
Israel
+972 2 588 3237 (Phone)
+972 2 581 6071 (Fax)

Arthur Fishman (Contact Author)

Bar-Ilan University - Department of Economics ( email )

Ramat-Gan, 52900
Israel
972-3-531-8366 (Phone)
972 3 535 3180 (Fax)

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