Global Economic Development Class

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Global Economic DevelopmentClass 14

• Questions
• Has social mobility diminished in USA? Yes. Why?
• What to do about it increase high school skills
  (Stokey).
• What is the comparison of social mobility
  international? Solon. Today.
• 3. Does mobility affect growth?
• 4. What determines mobility? Becker and Tomes.
  Today

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• Solon
• Beta Regression of a logarithmic measure of
  sons earnings on a logarithmic measure of
  fathers earnings.
• Table 1
• Scandinavian countries more mobile
• US and UK quite little mobility (despite high
  growth and very dynamic societies). Why?
  (Interesting question for small paper)
• Canada quite a lot of mobility
• Developing countries very little data, but South
  Africa and Malasya seem slightly less mobile than
  US
• Country A has lower mobility than country B if
• It has stronger heritability (example
  assortative mating)
• It has higher returns to human capital
• It has less progressive public investment
• Cross-sectional inequality depends on same
  things, but also on the variance of innovations
  to the process of heritability.
• Compare Canada, US and Sweden.

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Becker and Tomes (1) EtiathEt-1ivti Eti
endowment of the ith family in the tth generation
(captures biology and culture endowments) hdegree
of inherability Vtiunsystematic components or
luck in the transmission process h less than 1
and greater than 0 means regression to the
mean atsocial endowment common to all
members Two periods childhood and adulthood
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Yt?(Tt,ft)Htlt Ytadult earnings Hthuman
capital (skills and abilities, personality,
appearance, reputation, appropriate
credentials) ltluck Tttechnological
knowledge ftratio of human capital to nonhuman
capital in the economy
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Ht?(xt-1,st-1,Et) dYt/dxt-11rm(xt-1,st-1,Et) P
arents choose between give assets or invest in
human capital of children Maximization of
parents rmrt xt-1g(Et,st-1,rt) gEgt0, grlt0,
gslt0 Figure 1 YtF(g(Et,st-1,rt),st-1,Et)lt Yt
ctat FEhYt-1lt ltlt-hlt-1FEvt ctc(st-1,st-
2,h,rt,rt-1)
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Imperfect markets Example of poor parents that
reduce consumption Now, xt-1g(Et,st-1,Yt-1,w) w
generosity towards children Figure 2 Earnings of
children now depend directly on the earnings of
parents as well as indirectly through the
transmission of endowments. YtF(g(Et,st-1,rt),s
t-1,Et)lt Ytct(ßh)Yt-1-ßhYt-2lt We
should differentiate consumption mobility from
earnings mobility.
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• 4. What does determine mobility?
• Inheritability of endowments (h). But we need a
  better specification of endowments. Moreover, it
  seems difficult to separate endowments from human
  capital (for example, personality or reputation).
• Private investment in childrens human capital
  (not only schooling or skills, but influence on
  personality, appearance or attitude) (x).
• Public investment in childrens human capital
  (s).
• Rate of return of assets (r). (But what happens
  with technology improvement).
• Credit constraints (make societies less mobile)
  (measured by ß). These constraints depend on
  financial system trust, codes of conduct,
  collaterals, uncertainty.
• Inheritance taxes (affect bequests).
• Fertility with lower fertility in rich families,
  mobility slows down.
• Marriage assortative mating slows down mobility.