Intelligence , Social Mobility and Growth ∗

The rate of technological growth is likely to be affected by the way in which the stock of human resources is allocated. This social sorting of individuals over occupations is (partly) a market outcome, affected by the relative return to intellectual ability such as intelligence and other individual merits. To analyze how the social sorting is affected by growth, we present a stylized endogenous growth model where each agent can choose to be a worker or an entrepreneur. The reward for entrepreneurs is an endogenous function of the abilities they have been endowed with by nature and 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 for 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, and will cause low intergenerational social mobility and an allocation of human resources that hampers technological growth. On the other hand, there is also a stable equilibrium with high growth which creates an allocation of intellectual ability which, in turn, fosters high growth and implies high intergenerational social mobility. We thank Oded Galor, Adriana Kugler, Torsten Persson, Kjetil Storesletten, Daniel Tsiddon, Joseph Zeira, Fabrizio Zilibotti, and seminar participants at IIES, UPF, CEPR conferences in La Coruña and Tarragona, and at the NBER Summer Institute for helpful discussions. Christina Lönnblad provided invaluable editorial assistance. JVRM thanks the people at IIES for their hospitality. † Institute for International Economic Studies, Stockholm University, S-106 91 Stockholm, Sweden and CEPR. Email: [email protected]. Telephone: +46-8-162070. ‡ Department of Economics, Universitat Pompeu Fabra, Ramón Tŕıas Fargas 25-27, 08005 Barcelona, Spain. Email: [email protected]. Telephone: +34-3-5421755. Intelligence, Social Mobility and Growth