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Inequality and Mobility

Author

Listed:
  • Hassler, John

    (Institute for Internatioanl Economic Studies, Stockholm U)

  • Rodriguez Mora, Jose V.

    (U Pompeu Fabra and CEPR)

  • Zeira, Joseph

    (Hebrew U of Jerusalem)

Abstract

We construct a model where wage inequality, intergenerational mobility and the distribution of skills are all jointly determined in general equilibrium, which is solved analytically. We show that it is important to treat these variables jointly, as they have a significant effect on each other. The model is used to understand both empirical regularities and policy implications. The main result of the paper is that changes in education, including public education, lead to a negative correlation between inequality and upward mobility, while changes in productivity tend to lead to a positive correlation between inequality and upward mobility. Hence, the observations that some European countries tend to be more equal but less socially mobile than the US, cannot be attributed to differences in public support to education, but rather to differences in productivity. Another result of the paper is that while public support to education benefits children of poor parents, it benefits children of skilled and rich parents by even more, improving their relative chances of success. Since parents care about their children, general public support to education can then increase the difference in welfare between skilled and non-skilled individuals, notwithstanding a reduction in wage inequality.

Suggested Citation

  • Hassler, John & Rodriguez Mora, Jose V. & Zeira, Joseph, 2002. "Inequality and Mobility," Working Paper Series rwp02-009, Harvard University, John F. Kennedy School of Government.
    • Handle: RePEc:ecl:harjfk:rwp02-009
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    More about this item

    JEL classification:

    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion

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