Actual, Feasible and Optimal Income Inequality in a Three-Level Education Model

Incomes should be interpreted as the outcome of demand for, and supply of, various types of labor. Demand is derived from a Cobb-Douglas-like production function with five types of labor characterized by actual education and ed ucation required. Supply is derived from a utility function containing income, actual education and education required. One complete model for analytical—explanatory—and one complete model for normative—optimization—purposes are constructed. The former shows the influence on income dis tribution of given changes in educational level; the latter, the optimal income distribution under two different sets of con straints on education. Figures used are crude figures for the Netherlands around 1962

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