Inequality and mobility

This paper presents a theoretical framework for understanding how inequality and mobility are jointly determined, since they are strongly related. It shows how exogenous changes lead to different correlations between inequality and mobility. Thus, differences in the production sector lead to a positive correlation between inequality and mobility, while differences in the education sector lead to a negative correlation between these two variables. Hence, we can better understand the causes for changes in inequality over time or across countries by observing changes in mobility as well. The model is applied to better understand some empirical issues, like the recent rise in skill premium, and international differences in inequality and mobility. The paper also shows that skilled parents might prefer more public education than unskilled parents, if the educational barriers for children of unskilled are high