Education, Segregation and Marital Sorting : Theory and an Application to UK Data

This paper presents a model of the intergenerational transmission of education and marital sorting where parents matter both because of their household income and because parental human capital determines the expected value of a child's disutility from making an effort to become skilled. We show that an increase in segregation has potentially ambiguous effects on the fraction of individuals that become skilled in the steady state, and hence on marital sorting, the personal and household income distribution, and welfare. We calibrate the steady-state of our model to UK statistics and compare a version of the model to the results obtained previously for the US. We find that segregation is likely to have a smaller negative impact in the UK than in the US as a result of the fertility and education transmission process. When the relative supply of skilled individuals is endogenous, the welfare effect of increased sorting on unskilled individuals depends on the magnitude of the supply increase