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An adjustment cost model of social mobility.

Basu, P. and Getachew, Y. (2015) 'An adjustment cost model of social mobility.', Journal of macroeconomics., 44 . pp. 177-190.


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.

Item Type:Article
Keywords:Adjustment cost of capital, Inequality persistence, Intergenerational mobility.
Full text:(AM) Accepted Manuscript
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Publisher 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.
Date accepted:16 February 2015
Date deposited:03 March 2015
Date of first online publication:05 March 2015
Date first made open access:05 March 2016

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