Group Inequality

Abstract

We explore the combined effect of segregation in social networks, peer effects, and the relative size of a historically disadvantaged group on the incentives to invest in market-rewarded skills and the dynamics of inequality between social groups. We identify conditions under which group inequality will persist in the absence of differences in ability, credit constraints, or labor market discrimination. Under these conditions, group inequality may be amplified even if initial group differences are negligible. Increases in social integration may destabilize an unequal state and make group equality possible, but the distributional and human capital effects of this depend on the demographic composition of the population. When the size of the initially disadvantaged group is sufficiently small, integration can lower the long-run costs of human capital investment in both groups and result in an increase the aggregate skill share. In contrast, when the initially disadvantaged group is large, integration can induce a fall in the aggregate skill share as the costs of human capital investment rise in both groups. We consider applications to concrete cases and policy implications.

Moral Action as Cheater Suppression in Human Superorganisms

“…Gene-culture coevolutionary theory provides evidence that specific psychological machinery to support morality-in the form of perceptual biases, social learning abilities, and neurological mechanisms-could have evolved in human populations through the kind of intensive cultural group selection just discussed, accounting for the appearance of moral systems in our recent history (Bowles et al, 2014). According to this theory, humans should have evolved expectations to find some behaviors are sanctioned in the groups to which they belong, to have innate abilities to recognize which behaviors are moralized, to rapidly learn how to perform these behaviors from others in their vicinity through sophisticated forms of social learning, and to experience both conformity with norms and punishment of norm violators as rewarding, so that moral experiences are reinforced (Chudek et al, 2013).…”

A Racial Inequality Trap

“…Table 1 can also pin down the extent of segregation when it is exogenous. Lundbergh and Startz (1998) and Bowles, Loury and Sethi (2008) show that the extent of segregation is crucial for the dynamic path of the economy. Table 2 compares the characteristics of RNs across years.…”

“…This condition is usually important to guarantee the existence of a steady state. 13 Child learning ability is observed before the household makes decisions, assuming ex-ante observation of ability is consistent with model periods representing several years of investment decisions and observation of the child's characteristics by parents. The theoretical literature contains examples of ex-ante and ex-post observation of ability.…”

Social externalities, overlap and the poverty trap

“…Each newborn individual at time t makes a skill investment decision by comparing the cost of skill acquisition with the expected benefits of investment. The cost to achieve a skill at time t depends on innate ability a ∈ (−∞, ∞) and the quality of social network at time t as suggested by Bowles et al [5]: C t ≡ C(a, s t ) . The C(a, s t ) is a decreasing function in both arguments a and s t .…”

“…Lundberg and Startz [18] argue that group disparities in earnings can persist indefinitely when the average level of human capital in a community affects the accumulation of human capital of the following generations. In a related work, Bowles et al [5] prove the instability of an equal society in a highly segregated economy under the interpersonal spillovers in human capital accumulation and the production complementarity between high and low skill labor. Other works focus on network externalities in the subsequent career stages.…”