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A Brief Note on Social Mobility and Income Distribution

Author

Listed:
  • Bob Rowthorn

Abstract

Using a simple model based on Gibrat’s Law of Proportionate Effect, this note demonstrates formally how, in a dynamic setting, earnings inequality is generated. The distribution of earnings in each generation is determined by parental earnings in the previous generation and by random effects uncorrelated with parental earnings. The asymptotic distribution of earnings is log-normal. The paper concludes with a comparison of Sweden and the USA. This comparison suggests that random effects are more important than intergenerational transmission in explaining why earnings inequality is much greater in the USA than in Sweden.

Suggested Citation

  • Bob Rowthorn, 2023. "A Brief Note on Social Mobility and Income Distribution," Working Papers wp538, Centre for Business Research, University of Cambridge.
    • Handle: RePEc:cbr:cbrwps:wp538
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    More about this item

    Keywords

    Inequality; social mobility;

    JEL classification:

    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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