Inequality and employment
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Natural rate theory has dominated interpretations of economic trends and policy prescriptions over many decades, as economists contrasted high unemployment and lower inequality in Europe with the great American job machine. This paper discusses the relationship between skill structure and wage distributions and investigates the claim that inequality creates incentives which facilitate human capital formation. The big tradeoff between efficiency and inequality is dismissed as a fallacy, as it is demonstrated that redistribution lays the foundation for human capital investment rather than impeding it.
KeywordsIncome Inequality Wage Distribution Human Capital Investment NBER Working Paper Labour Market Institution
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