Publication detailsBasu, P. & Getachew, Y. (2015). An adjustment cost model of social mobility. Journal of Macroeconomics 44: 177-190.
- Publication type: Journal Article
- ISSN/ISBN: 0164-0704
- DOI: 10.1016/j.jmacro.2015.02.008
- Keywords: Adjustment cost of capital, Inequality persistence, Intergenerational mobility.
- Further publication details on publisher web site
- Durham Research Online (DRO) - may include full text
Author(s) from Durham
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.