Intangibles, Inequality and Stagnation
47 Pages Posted: 23 Jan 2018
Date Written: January 9, 2018
We examine how aggregate output and income distribution interact with accumulation of intangible capital over time and across individuals. We consider an overlapping generations economy in which managerial skill (intangible capital) is essential for production, and it is acquired by young workers through on-the-job training by old managers. We show that, when young trainees are not committed to staying in the same firms and repaying their debt, a small difference in initial endowment and ability of young workers leads to a large inequality in accumulation of intangibles and lifetime income. A negative shock to endowment or the degree of commitment generates a persistent stagnation and a rise in inequality.
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