Het is mogelijk dat het orimogelijk is om iets nieuwer enjuister te zeggen, maar over al het geschrevene daalt het stof der tijden neer, en ik peins daarom dat het goed is als er om de 10 jaar een andere een kruis trekt over al die oude dingen, en de wereld-van-vandaag opnieuw uitspreekt 1 met andere woorden. -Louis Paul Boon (1972) 1.1 THE PROBLEM The distribution of labor incomes is a problem with two aspects, each of which has received ample attention in the literature. The first aspect relates to the shape of the frequency distribution of individuals according to their (labor) incomes. Analytical contributions include the so-called stochastic theories of income dis- tribution, such as Gibrat's law of proportionate effect, Champernowne's and Rutherford's Markov-chain models, and Pigou's puzzle. The question is, If abil- ities are normally distributed, why should the distribution of incomes deviate from this shape? This deviation is the basic fact that these theories explain: in- come distributions, whatever the time and place of observation, are positively skewed. 2 CHAPTER 1 The second aspect of the distribution of labor incomes is the problem of wage differentials: why do wages differ, why do all workers not earn the same wage? This question has been a standard problem ever since Adam Smith dealt with it.

In the wake of the publication of Forrester's World Dynamics and Meadow's The Limits to Growth-books which in The Netherlands may have received ex cessive attention from the public at large-the Netherlands Organization for Applied Scientific Research (TNO) established a commission under the chair manship of the late Professor R. Timman. The commission received the task of trying to find a sound philosophical basis for world modelling and to stimulate the building of models that incorporated those aspects of society which are usu ally left out of mathematical models because of technical difficulties. The study that is discussed in this text was started under the auspices of the TNO commis sion. Timman died early in 1975. The commission then came under the chair manship of Professor P. de Wolff. TNO generously provided the means to acquire the computer time necessary to continue our study. We also wish to express our gratitude to the Statistical Office of the European Communities (SOEC) for their willingness to put the necessary data at our dis posal in a form suitable for computer processing. Mr. H. Krijnse Locker's expert knowledge in the field of input-output statistics has especially been of great sup port to us. We are much indebted to Professor A. P. J. Abrahamse for his interest in our work and for all the valuable comments and corrections we received from him. v vi PREFACE We are grateful to Mr. P. van Batenburg, Mr. F."

In the wake of the publication of Forrester's World Dynamics and Meadow's The Limits to Growth-books which in The Netherlands may have received ex cessive attention from the public at large-the Netherlands Organization for Applied Scientific Research (TNO) established a commission under the chair manship of the late Professor R. Timman. The commission received the task of trying to find a sound philosophical basis for world modelling and to stimulate the building of models that incorporated those aspects of society which are usu ally left out of mathematical models because of technical difficulties. The study that is discussed in this text was started under the auspices of the TNO commis sion. Timman died early in 1975. The commission then came under the chair manship of Professor P. de Wolff. TNO generously provided the means to acquire the computer time necessary to continue our study. We also wish to express our gratitude to the Statistical Office of the European Communities (SOEC) for their willingness to put the necessary data at our dis posal in a form suitable for computer processing. Mr. H. Krijnse Locker's expert knowledge in the field of input-output statistics has especially been of great sup port to us. We are much indebted to Professor A. P. J. Abrahamse for his interest in our work and for all the valuable comments and corrections we received from him. v vi PREFACE We are grateful to Mr. P. van Batenburg, Mr. F."

Het is mogelijk dat het orimogelijk is om iets nieuwer enjuister te zeggen, maar over al het geschrevene daalt het stof der tijden neer, en ik peins daarom dat het goed is als er om de 10 jaar een andere een kruis trekt over al die oude dingen, en de wereld-van-vandaag opnieuw uitspreekt 1 met andere woorden. -Louis Paul Boon (1972) 1.1 THE PROBLEM The distribution of labor incomes is a problem with two aspects, each of which has received ample attention in the literature. The first aspect relates to the shape of the frequency distribution of individuals according to their (labor) incomes. Analytical contributions include the so-called stochastic theories of income dis- tribution, such as Gibrat's law of proportionate effect, Champernowne's and Rutherford's Markov-chain models, and Pigou's puzzle. The question is, If abil- ities are normally distributed, why should the distribution of incomes deviate from this shape? This deviation is the basic fact that these theories explain: in- come distributions, whatever the time and place of observation, are positively skewed. 2 CHAPTER 1 The second aspect of the distribution of labor incomes is the problem of wage differentials: why do wages differ, why do all workers not earn the same wage? This question has been a standard problem ever since Adam Smith dealt with it.