Intergenerational mobility and macroeconomic history dependence

That historical inequality can affect long run macroeconomic performance has been argued by a large literature using models of indivisibilities in occupational choice, combined with credit constraints. Most of these models are characterized by a continuum of steady states, and absence of mobility in any steady state. We augment such a model with heterogeneity in agents’ abilities in order to generate the possibility of occupational mobility in steady state. Traditional results concerning steady state multiplicity and history dependence are then considerably weakened. We provide a class of conditions under which there is a unique steady state with mobility. In general such steady states are (generically) locally unique and finite in number, implying that small temporary shocks to steady states do not have permanent macro effects. A ‘little’ bit of heterogeneity may also cause competitive equilibrium dynamics to fail to converge.