Long Run Growth and Income Distribution in an OLG Model with Strategic Job-Seeking and Credit Rationing

In the human capital literature, it is usually assumed that human cap-ital is paid according to its marginal productivity. Nevertheless, in the real world labor compensation is linked to a xed hierarchy due to the division and organization of labor. Access to privileged positions in the hierarchy depends on schooling credentials, which in turn are a function of individual learning abilities and of individual spending in education. People compete in education in order to achieve the best job positions: positional competition is like a rent-seeking activity, based on the dier-ent levels of credentials. In this paper, a simple OLG economy with two agents and two kinds of jobs is modeled, and the strategic solutions are analyzed. The model shows dierent outcomes depending on the hypothe-ses regarding the type of strategic interaction (sequential or simultaneous) and the characteristics of the capital market. In the sequential equilib-rium, the presence of credit market imperfections and risk-aversion makes the asympthotic wealth distribution dependent on initial conditions (non ergodicity). In the simultaneous equilibrium, a non monotonic relation-ship between income inequality and long run growth is shown; in the long run, job allocation is mainly determined by the innate learning abilities and it is unrelated to the initial wealth distribution (ergodicity)