TY - JOUR

T1 - Market size, occupational self-selection, sorting, and income inequality

AU - Behrens, Kristian

AU - Pokrovsky, Dmitry

AU - Zhelobodko, Evgeny

N1 - Funding Information: We thank Sergey Kokovin for his contribution to an early version of this paper. We further thank two anonymous referees, the editor Mark Partridge, as well as Rodolphe Dos Santos Ferreira, Florian Mayneris, Mathieu Parenti, Frédéric Robert-Nicoud, and Frederico Trionfetti for helpful comments and suggestions. Alyona Skolkova and Vera Sharunova provided excellent research assistance. The study has been funded by the Russian Academic Excellence Project “5-100.” We further acknowledge the financial support from the Russian Federation Government under Grant No. 11.G34.31.0059. Behrens gratefully acknowledges financial support from the CRC Program of the Social Sciences and Humanities Research Council of Canada for the funding of the Canada Research Chair in Regional Impacts of Globalization. Pokrovsky gratefully acknowledges financial support from the Economics Education and Research Consortium Grant No. 120401. Any remaining errors are ours. Publisher Copyright: © 2017 Wiley Periodicals, Inc.

PY - 2018/1

Y1 - 2018/1

N2 - 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.

AB - 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.

KW - income inequality

KW - market size

KW - occupational self-selection

KW - sorting

UR - http://www.scopus.com/inward/record.url?scp=85019047687&partnerID=8YFLogxK

UR - https://www.elibrary.ru/item.asp?id=35475015

U2 - 10.1111/jors.12342

DO - 10.1111/jors.12342

M3 - Article

AN - SCOPUS:85019047687

VL - 58

SP - 38

EP - 62

JO - Journal of Regional Science

JF - Journal of Regional Science

SN - 0022-4146

IS - 1

ER -