Working Paper: CEPR ID: DP923
Authors: Gilles Saint-Paul
Abstract: In an overlapping generations model, rents to human capital play a key role in increasing savings. In the absence of such rents, the return to human capital is entirely appropriated by the old and accumulation is entirely determined by the income to fixed factors. If rents are introduced by setting a ceiling on human capital accumulation, the economy may achieve a larger income level, even though the ceiling reduces the economy's feasibility set. Threshold effects and multiple steady states arise because rents to human capital are self perpetuating. Inequality in abilities may be good for growth because it allows inframarginal workers to earn rents on their human capital, which then increase savings. Public education is also good for growth because it gives the young property rights over their own human capital, which are thus equivalent to rents.
Keywords: growth; human capital; savings; overlapping generations; inequality; public education; threshold effects
JEL Codes: E21; E25; H42; H52; J24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Rents to human capital (J24) | savings (D14) |
| ceiling on human capital accumulation (D29) | savings (D14) |
| inequality among workers (J70) | capital accumulation (E22) |
| inequality in the costs of acquiring human capital (I24) | savings (D14) |
| public education (H52) | savings (D14) |
| public education (H52) | economic growth (O49) |