The Effects of Redistribution on Occupational Choice and Intergenerational Mobility: Does Wage Equality Nail the Cobbler to His Last?
In this study we extend the classical Roy-model of selection on the labor market by introducing uncertainty about ones ability linked to family background. In our model, this mechanism rather than differences in access to capital markets links occupational outcomes of offspring to parents. Income redistribution is studied and we find that redistribution has implications for intergenerational mobility and talent allocation through its influence on individual occupational choices. We conclude that the presence of a trade-off between redistribution and intergenerational mobility depends on the extent of similarity of occupations with regard to ability sensitivity and wage rates, and on the degree of individual risk aversion. Whether redistribution occurs within an occupation or simultaneously within and across occupations is also important.
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