IQ, Social Mobility and Growth

Abstract

Intelligent agents may contribute to higher technological growth if assigned appropriate positions in the economy. These positive effects on growth are unlikely to be internalized on a competitive labor market. The allocation of talent depends on the relative award the market assigns to intelligence versus other individual merits, which will also influence intergenerational social mobility. To illustrate this, we present an endogenous growth model where each agent can choose to be a worker or an entrepreneur. The reward to entrepreneurs is an endogenous function of the abilities they have been endowed by nature as well as of the amount of knowledge and other social assets they inherit from their parents. When growth is low, the equilibrium in the labor market implies that the reward to entrepreneurs depends more on social assets than on intelligence. This gives children of entrepreneurs a large ex-ante advantage over children of workers when working as entrepreneurs, which will cause low intergenerational social mobility and an inefficient allocation of human resources and, consequently, low growth. Conversely, there is also a stable equilibrium with high growth which mitigates the inefficiencies generated by the labor market and implies high intergenerational social mobility.

JEL Classification: J62, O1