The Rise of Meritocracy and the Inheritance of Advantage

We present a model where more accurate information on the background of individuals facilitates statistical discrimination, increasing inequality and intergenerational persistence in income. Surprisingly, more accurate information on the actual capabilities of workers leads to the same result - firms give increased weight to the more accurate information, increasing inequality and fostering discrimination. The rich take advantage of this through educational investments in their children, lowering mobility. Using our model to interpret the data suggests that a country like the US might be a land of opportunity for the sufficiently able but where (for endogenous reasons) ability is strongly correlated with background.