Educational mobility: The effect on efficiency and distribution

Within a microeconomic framework, educational mobility and inequality are s tudied. The labour market is characterized by imperfectly substitutable ski lls and production occurs in monopolistically competitive industries that e xhibit local non-convexities. Education allows for upward mobility. It is s hown that multiple mobility equilibria exist in the stage game. In addition , for some skill levels, Pareto improvements are possible through adjustmen t policies. In the repeated game, a sufficient condition is derived for pol arization, in which case the economy exhibits a low growth path. A higher g rowth path can be achieved through intertemporal redistribution. Without ad justment, inequality will increase continuously.