Seminar Room 1, Espais de Recerca (ERE)

Duration: 20 minutes

Abstract: This paper investigates the relationship between income inequality and intergenerational mobility using wage premiums. The empirical literature has shown that countries with low social mobility differ from countries with high social mobility by the extent of downward mobility of children from high in- come families and the extent of upward mobility from children from low income families. I show that in a three class overlapping generations model where children make their educational choices based on bequest they receive from their parents, wage differentials could be an explanation of the mobility pat- terns observed in the empirical literature. In this model, two forces shape the educational decision: the returns on education and the opportunity costs of education. For low income families the opportunity costs are more important whereas for high income families their effect is negligible. Wage differentials define which of the two forces is predominant.