Innovation, Unemployment and Policy in the Theories of Growth and Distribution
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Innovation, Unemployment and Policy in the Theories of Growth and Distribution

Edited by Neri Salvadori and Renato Balducci

Innovation, Unemployment and Policy in the Theories of Growth and Distribution increases our understanding about the more relevant economic determinants and policy aspects of the interdependence between economic growth and income distribution.
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Chapter 9: Redistributing opportunities in a job search model: the role of self-confidence and social norms

Francesco Drago

Extract

9. Redistributing opportunities in a job search model: the role of selfconfidence and social norms * Francesco Drago 9.1. INTRODUCTION Search theories in the labour market have recently been used to analyse empirical regularities such as worker flows and wage dispersion. In particular one of the most important results from this strand of literature shows how pure wage dispersion among identical workers arises as an equilibrium outcome in a general equilibrium model characterized by search frictions (Burdett and Mortensen, 1998). In this respect the standard job search model offers an explanation of why identical workers that search for better jobs receive offers that differ in wage rates, and contributes to explain inequality in the labour market. Another compelling explanation of why identical workers are paid differently concerns the theory of the behavioural determinants of earnings. Robust empirical evidence shows that behavioural traits, such as some aspects of personality, may be considered to some extent as determinants of earnings (see, for example, Bowles, Gintis and Osborne, 2001 and Cawley, Heckman and Vytlacil, 2001). Social networks, patience, perseverance and self-confidence among others may then explain part of the inequality that is not explained by the (neoclassical) standard wage equation (Bowles, Gintis and Osborne, 2001). All these traits explain part of earnings differences, as well as different (upward) mobility rates, although they are not productive skills, that is, they do not contribute to production as they do not enter the production function. In this chapter we seek to study some key factors that result...

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