Human Capital, Social Mobility and the Skill Premium

32 Pages Posted: 18 Sep 2013

See all articles by Konstantinos Angelopoulos

Konstantinos Angelopoulos

Athens University of Economics and Business - Department of International and European Economic Studies

James R. Malley

University of Glasgow

Apostolis Philippopoulos

Athens University of Economics and Business - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); University of Essex

Date Written: September 18, 2013

Abstract

This paper develops a dynamic general equilibrium model to highlight the role of human capital accumulation of agents differentiated by skill type in the joint determination of social mobility and the skill premium. We first show that our model captures the empirical co-movement of the skill premium, the relative supply of skilled to unskilled workers and aggregate output in the U.S. data from 1970-2000. We next show that endogenous social mobility and human capital accumulation are key channels through which the effects of capital tax cuts and increases in public spending on both pre- and post-college education are transmitted. In particular, social mobility creates additional incentives for the agents which enhance the beneficial effects of policy reforms. Moreover, the dynamics of human capital accumulation imply that, post reform, the skill premium is higher in the short-to medium-run than in the long-run.

Keywords: social mobility, skill premium, tax and education policy

JEL Classification: E620, J310, J620

Suggested Citation

Angelopoulos, Konstantinos and Malley, James R. and Philippopoulos, Apostolis, Human Capital, Social Mobility and the Skill Premium (September 18, 2013). CESifo Working Paper Series No. 4388, Available at SSRN: https://ssrn.com/abstract=2327435

Konstantinos Angelopoulos

Athens University of Economics and Business - Department of International and European Economic Studies ( email )

GR-10434 Athens
Greece

James R. Malley (Contact Author)

University of Glasgow ( email )

Adam Smith Business School
Glasgow, Scotland G12 8LE
United Kingdom

Apostolis Philippopoulos

Athens University of Economics and Business - Department of Economics ( email )

76 Patission Street
GR-10434 Athens
Greece
+301 322 3187 (Phone)

CESifo (Center for Economic Studies and Ifo Institute for Economic Research) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

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