Draft coming soon.
Abstract: The United States experienced strongly correlated increases and subsequent flattening in the services share and the college wage premium from 1980 to 2016. This paper provides evidence for direct effects of inequality on structural transformation: (i) a luxury/necessity channel, (ii) marketization of home production as an outcome of an opportunity cost argument. Consequently, the relationship between structural change and inequality can run in both directions. To assess the importance of the different mechanisms, I build a model with heterogeneous production intensities, nonhomothetic CES preferences over sectors, and consumption as a composite of market and home origin within a sector. In particular, the marketization mechanism implies that the relative market labor supply becomes endogenous. I combine estimated demand parameters from household level data with calibrated technology parameters in a quantitative model.
Draft coming soon.
Abstract: It is unclear whether the documented relationships between inequality and structural transformation in rich countries also apply to middle and low-income economies. This paper addresses this question by examining Tanzania and Mexico.