We introduce non-homothetic preferences into a general equilibrium model of monopolistic competition and explore the impact of income inequality on the medium-run macroeconomic equilibrium. We find that (i) a sufficiently high extent of inequality divides the economy into mass consumption...

We present a model in which two of the most important features of the long-run growth process are reconciled: the massive changes in the structure of production and employment; and the Kaldor facts of economic growth. We assume that households expand their consumption along a hierarchy of needs...

We utilize Schmookler’s (1966) concept of demand-induced invention to study the role of income inequality in an endogenous growth model. As rich consumers can satisfy more wants than poor consumers, both prices and market sizes for new products, as well as their evolution over time, are...

Identification of the strength of human capital externalities at the aggregate level is still not fully understood. The existing method may yield positive or negative externalities even if wages reflect marginal social products. We propose an approach that yields positive average human capital...

We combine growth theory with US Census data on individual schooling and wages to estimate the aggregate return to human capital and human capital externalities in cities. Our estimates imply that a one year increase in average schooling in cities increases their aggregate labour productivity by...

We evaluate the effect of active labour market programs on the duration of unemployment in a reward or punish system. In Switzerland, unemployment benefits are conditional upon program attendance after 7 months of unemployment duration. In the evaluation we allow for selectivity affecting the...