20.2 How economic Inequality Arises

MyEconLab Concept Video

Economic inequality arises from a wide variety of factors. The five key ones that we’ll examine here are

  • Human capital

  • Discrimination

  • Financial and physical capital

  • Entrepreneurial ability

  • Personal and family characteristics

Human Capital

Human capital is the accumulated skill and knowledge of human beings. To see how human capital differences affect economic inequality, we’ll study an econ-omy with two levels of human capital, which we’ll call high-skilled labor and ­low-skilled labor. Low-skilled labor might be law clerks, hospital orderlies, or bank tellers, and high-skilled labor might be attorneys, surgeons, or bank CEOs.

The Demand for High-Skilled and Low-Skilled Labor

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