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Inequality and Mobility

Acknowledging that wage inequality and intergenerational mobility are strongly interrelated, this paper presents a model in which both are jointly determined. The model enables us to study how inequality and mobility are affected by exogenous changes and what determines their correlation. A main implication of the model is that differences in the amount of public subsidies to education and educational quality produce cross-country patterns with a negative correlation between inequality and mobility. Differences in the labor market, like differences in skill-biased technology or wage compression instead produce a positive correlation. The predictions of the model are found to be consistent with various empirical observations on mobility and inequality.

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File URL: http://www.econ.ed.ac.uk/papers/id165_esedps.pdf
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Paper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number 165.

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Length: 38
Date of creation: Sep 2007
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Handle: RePEc:edn:esedps:165
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