Market size, occupational self‐selection, sorting, and income inequality. (8th May 2017)

• Record Type: Journal Article
• Authors: Behrens, Kristian; Pokrovsky, Dmitry; Zhelobodko, Evgeny
• Is Part Of: Journal of regional science. Volume 58:Number 1(2018)
• Page Start: 38
• Page End: 62
• Publication Date: 2017-05-08
• Subjects: income inequality -- market size -- occupational self‐selection -- sorting; Economics -- Research -- Periodicals; Regional planning -- Periodicals; 330.072
• DOI: 10.1111/jors.12342
• Languages: English
• ISSNs: 0022-4146

Abstract

Abstract: We develop a monopolistic competition model with heterogeneous agents who self‐select into occupations (entrepreneurs and workers) depending on innate ability. The effect of market size on the equilibrium occupational structure crucially hinges on properties of the lower tier utility function—its scale elasticity and relative love‐for‐variety. When combined with the underlying ability distribution, the share of entrepreneurs and income inequality can increase or decrease with market size. When extended to allow for the endogenous sorting of mobile agents between cities, numerical examples suggest that sorting may increase inequality within and between cities.