Human Capital and Income Distribution:A Neoclassical Economic View

Abstract:

This paper tries to integrate income distribution into the framework of neoclassical growth theory through the analysis of effects of human capital on income distribution.Labor market is divided into markets for the skilled and the unskilled workers.To become skilled one involves the investment of human capital and the decision of the worker.Based on the assumptions of the depreciation rates of human and physical capital to be 1 and 0,respectively,the way for social welfare maximization is proposed.But there will still exist distributive inequality,and the inequality index may even be a constant.The rates of returns to both human and physical capital should be the same when the economy equilibrates.For individuals who are able to invest in human capital,there is no difference in investing both kinds of capital.These workers can migrate between the two labor markets according to fluctuations in relative wages of both workers and in relative rates of returns of both capitals.Their migration may lead the economy to go away from equilibrium on the one hand and bring it back to new equilibrium on the other hand,meanwhile,the inequality remains within a certain range.