We characterize optimal redistribution in a dynastic economy with observable human capital and hidden ability. The government can use education to improve the insurance-incentive trade-off because there is a wedge between human capital investment in the laissez faire and the social optimum. This...

In this paper we investigate the importance of labor market institutions such as unemployment insurance, unions, firing regulation and minimum wages for the evolution of wage inequality across countries. We derive a simple log-linear equation of the wage differential as a function of the...

Smoother labor incomes alleviate credit constraints by reducing workers' desire to borrow, and prospects of upward income mobility have smaller beneficial effects for currently poor workers when borrowing constraints are binding. These simple theoretical insights are consistent with the...