Social exclusion, capital accumulation and inequality

- We model social exclusion in a general equilibrium framework with traded and non-traded goods.
- Capital accumulation can reduce the welfare of socially excluded groups.
- Capital accumulation can increase inequality between controlling and socially excluded groups.

We construct a four-good, four-factor general equilibrium model with trade to show that, under certain conditions, capital accumulation results in: (a) the immiserization of socially excluded groups; (b) an increase in the rate of return on capital; and (c) a decrease in the wage rate of socially excluded groups. Our analysis shows why social exclusion increases inequality.