Human capital, self-esteem, and income inequality

We introduce into a human-capital based growth framework utility from self-esteem, driven by academic achievements. Self-esteem, through its effect on human capital, is shown to shape the intertemporal evolution and the persistence of income inequality, in general, and across population groups. Inequality persistence is obtained because of the wedge that the self-esteem component creates between households whose academic achievements are high enough as opposed to those whose achievements are insufficiently low. Among the several extensions, it is shown that controlling parenting style can exacerbate income inequality while reducing children’s self-esteem.