IQ, Social Mobility and Growth

Intelligent agents may contribute to higher technological growth, if assigned appropriate positions in the economy. These positive e ects on growth are unlikely to be internalized on a competitive labor market. The allocation of talent depends on the relative award the market assigns to intelligence versus other individual merits, which will also in uence intergenerational social mobility. To illustrate this, we present an endogenous growth model where each agent can choose to be a worker or an entrepreneur. The reward to entrepreneurs is an endogenous function of the abilities they have been endowed by nature as well as of 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 to 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, which will cause low intergenerational social mobility and an ine cient allocation of human resources and, consequently, low growth. On the other hand, there is also a stable equilibrium with high growth which mitigates the ine ciencies generated by the labor market and implies high intergenerational social mobility. Institute for International Economic Studies, Stockholm University, S-106 91 Stockholm, Sweden. Email: [email protected]. Telephone: +46-8-162070. y Department of Economics, Universitat Pompeu Fabra, Ram on Tr as Fargas 25-27, 08005 Barcelona, Spain. Email: [email protected]. Telephone: +34-3-5421755. We thank Torsten Persson, Kjetil Storesletten, Fabrizio Zilibotti, Adriana Kugler and seminar participants at IIES and UPF for valuable comments and suggestions. Christina L onnblad provided valuable editorial assistance. JVRM thanks the people at IIES for their hospitality.