INEQUALITY AND SOCIAL MOBILITY: UNDERSTANDING THE ROLE OF EDUCATION FINANCING

Abstract

This article examines in a unified framework the joint determination of inequalities and social mobility under a system of private and public financing of education. Individuals choose their profession and the corresponding level of education. They form their beliefs about their likelihood of success based on their parents’ mobility trajectory. The endogenous distribution of beliefs determines the degree of social mobility, the distribution of human capital between occupations, and ultimately the incentives to train. I show that the degree of social mobility depends on the educational skill premium expected by children whose parents have a low level of education. In this context, public education offers children from disadvantaged backgrounds a better chance to climb the social ladder if inherited factors are the main determinants of learning. On the contrary, if effort is the main element, a private system generates more social mobility despite higher income inequalities.