Stratification, Social Networks in the Labour Market and Intergenerational Mobility

This paper uses a model of human capital accumulation, labour market distortions, wordof-mouth communication, and community formation to analyse socio-economic stratification, educational choices and intergenerational social mobility. Workers obtain information about job opportunities from individuals in their local environment, implying that the social environment partly determines the expected returns to education. Strati…ed equilibria, when they exist, are characterised by low intergenerational social mobility and ine¢cient use of talent. The equilibrium responses to factors that generally encourage education may, in stratified outcomes, be highly asymmetric across socio-economic groups.