A Brief Note on Social Mobility and Income Distribution

Bob Rowthorn

Working Papers from Centre for Business Research, University of Cambridge

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.

Keywords: Inequality; social mobility (search for similar items in EconPapers)
JEL-codes: C20 D31 J31 (search for similar items in EconPapers)
Date: 2023-06
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