An adjustment cost model of social mobility

Basu, P.; Getachew, Y.

doi:10.1016/j.jmacro.2015.02.008

An adjustment cost model of social mobility

Basu, P.; Getachew, Y.

Authors

Professor Parantap Basu parantap.basu@durham.ac.uk
Professor

Y. Getachew

Abstract

We analyze herein the effects of the human capital adjustment cost on social mobility. Such an adjustment cost is modeled as a rising marginal cost schedule for augmenting human capital. We use a general human capital technology, which disentangles the adjustment cost from the depreciation cost of the human capital. Missing credit markets prevent individuals from equalizing the initial differences in the human capital. We find that a higher adjustment cost for human capital acquisition slows down the social mobility and results in a persistent inequality across generations. On the other hand, a higher rate of human capital depreciation could increase mobility via a positive effect on new investment. The quantitative analysis of our model suggests that the human capital adjustment cost is nontrivial to account for the observed persistence of inequality and social mobility. In addition, we find that the government redistribution policy could account for the large observed variation in estimates of social mobility.

Citation

Basu, P., & Getachew, Y. (2015). An adjustment cost model of social mobility. Journal of Macroeconomics, 44, 177-190. https://doi.org/10.1016/j.jmacro.2015.02.008

Journal Article Type	Article
Acceptance Date	Feb 16, 2015
Online Publication Date	Mar 5, 2015
Publication Date	Jun 1, 2015
Deposit Date	Feb 20, 2015
Publicly Available Date	Mar 5, 2016
Journal	Journal of Macroeconomics
Print ISSN	0164-0704
Publisher	Elsevier
Peer Reviewed	Peer Reviewed
Volume	44
Pages	177-190
DOI	https://doi.org/10.1016/j.jmacro.2015.02.008
Keywords	Adjustment cost of capital, Inequality persistence, Intergenerational mobility.
Public URL	https://durham-repository.worktribe.com/output/1445246

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Copyright Statement
NOTICE: this is the author’s version of a work that was accepted for publication in Journal of Macroeconomics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Macroeconomics, 44, June 2015, 10.1016/j.jmacro.2015.02.008.