Journal of Economic Growth

, Volume 7, Issue 2, pp 117–136

The Division of Labor, Inequality and Growth

Authors

  • Arthur Fishman
    • Department of EconomicsBar Ilan University
  • Avi Simhon
    • Hebrew University of Jerusalem
Article

DOI: 10.1023/A:1015672012193

Cite this article as:
Fishman, A. & Simhon, A. Journal of Economic Growth (2002) 7: 117. doi:10.1023/A:1015672012193

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.

division of laborincome equalitygrowth

Copyright information

© Kluwer Academic Publishers 2002