Working Paper 2016-396
While inter-generational income mobility is commonly understood to be socially desirable in that it promotes equality of life chances, social desirability of intragenerational income mobility is a much more controversial issue, which is known to be concerned with inequality and uncertainty effects, as well as aversion to income fluctuations. In this paper social welfare effects of intra-generational income mobility are investigated from the perspective of an opportunity egalitarian social planner. We show that, given the trade-off between inequality and uncertainty effects, social desirability of income mobility strongly depends on the characteristics of income switchings which are required to be rewarding the more deserving individuals and/or compensating the more unlucky ones. In this sense, we suggest that egalitarianism of opportunity, more than aversion to intertemporal fluctuations, is crucial for motivating the optimality of empirically observed low degrees of income mobility as compared to perfect mobility processes (complete reversal).
Authors: Antonio Abatemarco.