School of Economics and Finance

No. 849: Exploitation, skills, and inequality

Jonathan F. Cogliano , Department of Economics, Dickinson College
Roberto Veneziani , Queen Mary University of London
Naoki Yoshihara , Department of Economics, University of Massachusetts Amherst

January 10, 2018

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This paper uses a computational framework to analyse the equilibrium dynamics of exploitation and inequality in accumulation economies with heterogeneous labour. A novel index is presented which measures the intensity of exploitation at the individual level and the dynamics of the distribution of exploitation intensity is analysed. The e ects of technical change and evolving social norms on exploitation and inequalities are also considered and an interesting phenomenon of exploitation cycles is identi ed. Various taxation schemes are analysed which may reduce exploitation or inequalities in income and wealth. It is shown that relatively small taxation rates may have significant cumulative effects on wealth and income inequalities. Further, taxation schemes that eliminate exploitation also reduce disparities in income and wealth but in the presence of heterogeneous skills, do not necessarily eliminate them. The inegalitarian effects of different abilities need to be tackled with a progressive education policy that compensates for unfavourable circumstances.

J.E.L classification codes: B51, C63, D31

Keywords:Exploitation, heterogeneous labour, wealth taxes, computational methods