Why does asset inequality affect unemployment ? * . A study of the demand composition problem

This paper is devoted to a general equilibrium analysis of the relationship between the inequality in asset holdings and the aggregate levels of output and employment in a developing economy. Since luxuries and basic goods compete for the use of the same scarce resources, unemployment is conceived as a mechanism whereby the market demand for basic goods can be limited to a sufliciently low level so that the high demand for luxuries can be met. The ambiguous effects of capital accumulation on employment are also examined.