n.a.
Economic theory offers interpretations of intergenerational correlations that are different from the theories of other disciplines, and have important policy implications. Our paper presents a subset of those theories, and shows how they are consistent with observed mobility patterns as they vary across countries, demographic groups, and economic status measure. The data may suggest that the economic approach overemphasizes credit constraints, although more work is needed to further develop some of the alternative economic models. We also show how, in the models, 'progressive' policy may reduce mobility depending on how the policy is administered and how mobility is measured.
This chapter summarizes what has been learned from recent research on intergenerational transmission of earnings status. The chapter begins by using a simple theoretical model to highlight several key concepts. Then it reviews (and discusses the connections among) three related empirical literatures: on sibling correlations in earnings, on the intergenerational elasticity of offspring's earnings with respect to parents' earnings or income, and on neighborhood effects.
An accumulation of empirical evidence indicates substantial cross country variation in intergenerational earnings mobility. The United States and the United Kingdom, for example, appear to be less mobile societies than Canada, Sweden, and Finland. A theoretical model suggests that cross-country differences in intergenerational mobility could be associated with differences in the earnings returns to human capital investment, the progressivity of public investment in children's human capital, and the heritability of earnings-related traits.
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