Unequal wages for equal utilities

This paper studies how the risk of divorce affects the human capital decisions of a young couple. We consider a setting where complete specialization is optimal with no divorce risk. Couples can self-insure through savings which offers some protection to the uneducated spouse, but at the expense of a distortion. Alternatively, for large divorce probabilities, symmetry in education, where both spouses receive an equal amount of education, may be optimal. This eliminates the risk associated with the lack of education, but reduces the efficiency of education choices. We show that the symmetric allocation will become more attractive as the probability of divorce increases, if risk aversion is high and/or labor supply elasticity is low. However, it is only a "second-best" solution as insurance protection is achieved at the expense of an efficiency loss. Finally, we study how the (economic) use of marriage is affected by the possibility of divorce.

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“…9 See Cremer et al (2011). 10 The assumption that the education budget is fixed is made for simplicity but has no impact on the results.…”

Section: The Modelmentioning

confidence: 99%

“…It has been studied by a number of authors, in particular by Cremer et al (2011). Their main question is whether there will be specialization (i.e., one of the spouses uses up all the education resources) or symmetry (i.e., both spouses receive an equal amount of education).…”

Section: Introductionmentioning

confidence: 99%

United but (un)equal: human capital, probability of divorce, and the marriage contract

Cremer

Roeder

2014

J Popul Econ

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“…10 These results are summarized in the following proposition. 11 Proposition 1 In the absence of supplementary private education, and under assumption (3), the maximization of utilitarian social welfare yields the most elitist public education system ( W = 1) while social mobility is maximum when the least elitist public education system is adopted ( M = 0).…”

Section: The Optimal Level Ofmentioning

confidence: 99%

“…But …rst let us consider some basic facts. 1 In a recent paper Cremer et al (2009) put forward another reason to push for regressive education. It is not linked to heterogeneity in innate ability to bene…t from education but to pervasive non-convexities that arise in the optimal income tax problem when individual productivities depend on education.…”

Section: Introductionmentioning

confidence: 99%

Education and social mobility

Cremer

Donder

2010

Int Tax Public Finance

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This paper shows that the design of education policy involves a potential conflict between welfare and social mobility. We consider a setting in which social mobility is maximized under the least elitist public education system, whereas welfare maximization calls for the most elitist system. We show that when private education is available, the degree of elitism that maximizes social mobility increases, while the welfare-maximizing degree of elitism decreases. The ranking between the welfare-and mobility-maximizing degree of elitism may even be reversed. Utilitarian welfare is always higher when private supplementary education is available, but social mobility may be reduced. JEL-Code: H52, I28.

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“…The paper closest to ours is Cremer, Pestieau, and Racionero (2010), which has a similar model setup to our baseline model. However, their paper only compares the two extreme skill distributions, perfectly equal and perfectly unequal, and shows that the perfectly unequal distribution provides higher social welfare under a linear skill constraint.…”

Section: Introductionmentioning

confidence: 99%

On Optimal Skill Distribution in a Mirrleesian Economy

Leung

Yazıcı

2011

SSRN Journal

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People are heterogenous in the skills by which they turn effort into output. A central question in normative public economics is how to redistribute resources from more-to less-skilled individuals efficiently. In addition to income taxation, this paper considers another policy tool of redistribution by allowing planner to choose the dispersion of skill distribution given the average skill level of the economy. We find that, depending on the parameters of the model, either perfectly unequal skill distribution in which one group has a very high skill level and the rest are completely unskilled, or perfectly equal skill distribution in which all agents have the same skill level, is socially optimal, but an interior level of skill inequality is never optimal. We then provide conditions on the parameters under which perfectly equal and perfectly unequal skill distributions are optimal.

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Unequal wages for equal utilities

Abstract: Education policy, Optimal income taxation, Equal opportunity, H20, I20, D63,

Cited by 19 publications

References 22 publications

United but (un)equal: human capital, probability of divorce, and the marriage contract

United but (un)equal: human capital, probability of divorce, and the marriage contract

Education and social mobility

On Optimal Skill Distribution in a Mirrleesian Economy

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