Tag Archives: income distribution

Human Capital and the Quality of Education in a Poverty Trap Model

This paper presents a model of a poverty trap that is caused by an unequal initial income and human capital distribution, and differences in the quality of education between children from the more and less advantaged social sectors. Under certain conditions, the economy converges to a situation with three stable and simultaneous equilibria, two of which constitute poverty traps, lowering the economy’s current and steady-state aggregate output level as well as its growth rate. The model suggests that a policy oriented to equalizing the quality of education would, in the long run, have potential in reducing initial inequalities.

Citation: Santos, M. E. (2009). “Human Capital and the Quality of Education in a Poverty Trap Model.” OPHI Working Paper 30, University of Oxford.

Polarization and the Decline of the Middle Class: Canada and the US

Several recent studies have suggested that the distribution of income (earnings, jobs) is becoming more polarized. Much of the evidence presented in support of this view consists of demonstrating that the population share in an arbitrarily chosen middle income class has fallen. However, such evidence can be criticized as being range-specific – depending on the particular cutoffs selected. In this paper we propose a range-free approach to measuring the middle class and polarization, based on partial orderings. The approach yields two polarization curves which, like the Lorenz curve in inequality analysis, signal unambiguous increases in polarization. It also leads to an intuitive new index of polarization that is shown to be closely related to the Gini coefficient. We apply the new methodology to income and earnings data from the US and Canada, and find that polarization is on the rise in the US but is stable or declining in Canada. A cross-country comparison reveals the US to be unambiguously more polarized than Canada.

Citation: Foster, J. and Wolfson, M. C. (1992, revised in August 2009). “Polarization and the Decline of the Middle Class: Canada and the US.” OPHI Working Paper 31, University of Oxford.