Aspirations,Segregation, and Occupational Choice

This paper examines the steady states of an overlapping generations economy with a given distribution of household locations over a one‐dimensional interval. Parents decide whether or not to educate their children. Educational decisions are affected by location: There are local complementarities in investment incentives stemming from aspirations formation, learning spillovers, or local public goods. At the same time, economy‐wide wages endogenously adjust to bring factor supplies into line with demand. The model therefore combines local social interaction with global market interaction. The paper studies steady‐state configurations of skill acquisition, both with and without segregation. The model is used to compare macroeconomic and welfare properties of segregated and unsegregated steady states. (JEL: D31, O15, D85)