Working Paper: CEPR ID: DP2497
Authors: John Hassler; Jos V. RodrÃguez Mora; Joseph Zeira
Abstract: We use a general equilibrium OLG model to analyse the relation between intergenerational social mobility and wage inequality. We show that the correlation between mobility and inequality depends on which factor caused the change in inequality. The model can thus help discriminate between different competing explanations of the recent rise in US wage inequality. Under reasonable assumptions, skill-biased technical change tends to increase upward mobility, thereby causing a positive correlation between wage inequality and mobility. Public subsidies to education reduce inequality, but the effect on mobility is ambiguous and depends on how well households with non-skilled parents can take advantage of the subsidy. The relation between subsidies and upward mobility is always concave in the short run and may also be so in the long run. Under some circumstances, the relationship between public support for education and mobility can follow an inverted U-pattern. The model can thus provide an explanation to different patterns of inequality and social mobility in Europe and the US.
Keywords: educational policy; inequality; intergenerational mobility; skill bias
JEL Codes: H52; J62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| skill-biased technical change (J24) | wage inequality (J31) |
| skill-biased technical change (J24) | upward mobility (J62) |
| wage inequality (J31) | upward mobility (J62) |
| public subsidies to education (H52) | wage inequality (J31) |
| public subsidies to education (H52) | upward mobility (J62) |
| public subsidies to education (H52) | downward mobility (J62) |
| public support for education exhibits an inverted U-shape relationship with mobility (I24) | mobility (J62) |