Comparing Income Distributions Between Economies That Reward Innovation And Those That Reward Knowledge

Beard, Rodney and Tang, Kam-Ki (2002) Comparing Income Distributions Between Economies That Reward Innovation And Those That Reward Knowledge. Discussion Paper No. 314, School of Economics, The University of Queensland.

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Author Beard, Rodney
Tang, Kam-Ki
Title Comparing Income Distributions Between Economies That Reward Innovation And Those That Reward Knowledge
School, Department or Centre School of Economics
Institution The University of Queensland
Report Number Discussion Paper No. 314
Publication date 2002-08-01
Subject 340207 Labour Economics
Abstract/Summary In this paper, we develop an optimal control model of labor allocation in two types of economy - one economy is for innovative workers and the other one for knowledge workers. In both economies, workers allocate time between learning and discovering new knowledge. Both markets consist of a continuum of heterogeneous agents that are distinguished by their learning ability. Workers are rewarded for the knowledge they possess in the knowledge economy, and only for the new knowledge they create in the innovative economy. We show that, at steady state, while human capital accumulation is higher in the knowledge economy, the rate of knowledge creation is not necessarily higher in the innovative economy. Secondly, we prove that when the cost of learning is sufficiently high, the distribution of net wage income in the knowledge economy dominates that in the innovative economy in the first degree.
Keyword Information economy
knowledge economy
labour economics
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