Wealth inequality and occupational choice

Abstract

This paper attempts to analyze the role of inequality in determining the occupational pattern of an economy. It shows that when the capital market is imperfect and occupational choices involve indivisible investments, inequality tends to tilt the private optimum (PO) occupational mix in favor of the occupation with lesser investment requirement. By welfare maximization it then derives the social optimum (SO) for an economy given its inequality. But market forces may not behave in a way that the PO matches this SO; this paper suggests a counter-intuitive policy of subsidizing entrepreneurs rather than education in highly unequal economies.