Personal Income Distribution: A Multicapability Theory

PERSONAL INCOME DISTRIBUTION PERSONAL INCOME DISTRIBUTION: A Multicapability Theory Joop Hartog Erasmus University Rotterdam Martinus Nijhoff Publishing Boston/The Hague/London Distributors for North America: Martinus Nijhoff Publishing Kluwer Boston, Inc. 160 Old Derby Street Hingham, Massachusetts 02043 Distributors outside North America: Kluwer Academic Publishers Group Distribution Centre P.O. Box 322 3300 AH Dordrecht, The Netherlands Library of Congress Cataloging in Publication Data Hartog, Joop. Personal income distribution. Includes bibliographical references and indexes. 1. Income distribution. I. Title. 339.2'2 80-11851 HC79.15H37 ISBN-I3: 978-94-009-8762-3 e-ISBN-I3: 978-94-009-8760-9 001: 10.1007/978-94-009-8760-9 Copyright © 1981 by Martinus Nijhoff Publishing Softcover reprint of the hardcover 1st edition 1981 No part of this book may be reproduced in any form by print, photoprint, microfilm, or any other means, without written permission from the publisher. To Marleen and to 10han Willem CONTENTS ACKNOWLEDGMENTS xi INTRODUCTION 1 1.1 1.2 1.3 1.4 The Problem Some Facts Different Jobs, Different People Related Approaches 1.5 Human Capital Theory 1.6 Capabilities 1.7 Outline of the Book 2 INDIVIDUAL LABOR SUPPLY 2.1 The Basic Model 2.1.1 General Formulation 2.1.2 Specific Formulation 2.1.3 Some Implications of the Basic Model 2.2 Occupational Careers 2.3 Capability Development 2.4 A Life-Cycle Labor Supply Model 2.5 Evaluating Comments 3 4 6 10 13 15 16 17 17 19 22 26 29 30 32 vii CONTENTS viii 3 LABOR DEMAND 3.1 3.2 3.3 3.4 3.5 The Production Function Equilibrium of the Firm Some Comments Price Changes Evaluating Comments 4 MARKET EQUILIBRIUM 36 37 39 41 43 45 48 4.1 Divisibility 4.2 Divisibility and Equilibrium 4.3 Comparative Statics 4.3.1 A Single Market 4.3.2 A Multimarket System 50 54 57 57 60 5 THE INCOME DENSITY FUNCTION 64 5.1 5.2 5.3 5.4 5.5 The Earnings Function Optimal Efforts Age Distribution and Income Distribution Income Distribution and Income Tax Rate Changes Concluding Remarks 6 A TWO-CAPABILITY ILLUSTRATION 6.1 6.2 6.3 6.4 6.5 6.6 Labor Supply Labor Demand The Distribution of Income The Distribution of Job Wage Rates Effects of Income Tax Rate Changes Concluding Remarks 7 ON TESTING 7.1 7.2 7.3 7.4 7.5 7.6 Main Hypotheses and Their Testing Capabilities as Operational Variables The Distinction between Capability Stocks and Capability Supply Capabilities and Wages Capability Development Concluding Remarks 8 MEASUREMENT AND TESTING ON AMERICAN DATA 8.1 The Data 66 67 68 71 74 76 77 79 80 80 82 83 84 85 86 94 95 98 99 101 102 CONTENTS 8.1.1 Description 8.1.2 Some Qualifications 8.2 Reconnaissance: The 1970 Census Data 8.2.1 Data 8.2.2 Explaining Income 8.2.3 Factor Analysis 8.2.4 Conclusions 8.3 Further Analysis: The 1950 and 1960 Census Data 8.3.1 Data 8.3.2 Income Distribution by Capability Level 8.3.3 Factor Analysis 8.3.4 Explaining Income Differentials 8.3.5 Conclusions 9 EVALUATION AND EXPANSION ix 102 107 108 108 111 117 123 125 125 131 132 138 150 152 APPENDIXES 1 2 3 4 5 6 7 8. The Time Derivatives of Il t The Labor Demand Model Properties of Transformations Effects of Tax Rate Changes Explanation of DOT Variables The 1970 Census Data Set Distribution of Jobs by Capability Level Selection of Regression Results: 1950-1960 Census Data 155 157 159 169 175 183 185 189 NOTES 197 REFERENCES 203 liST OF SYMBOLS 209 NAME INDEX 213 SUBJECT INDEX