Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 538: Redistribution, Occupational Choice and Intergenerational Mobility: Does Wage Equality Nail the Cobbler to His Last?

Anna Sjögren ()
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Anna Sjögren: The Research Institute of Industrial Economics, Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden

Abstract: The classical Roy-model of selection on the labor market is extended in order to analyze intergenerational mobility. This is done by linking ability uncertainty to family background. I derive implications for the allocation of talent and for background dependent earnings patterns within occupations and show that a very compressed wage structure can cause negative sorting of people with family background in the occupation with low returns to ability. I also study the effects of income redistribution on mobility and talent allocation. It is found that a redistributive welfare system either reduces vertical mobility or enhances it at the cost of a shrinking proportion of people choosing the occupation with high returns.

Keywords: Intergenerational mobility; Occupational choice; Allocation of talent; redistribution

JEL-codes: J62; J68

33 pages, June 6, 2000

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