This paper provides a model of intergenerational social mobility and economic growth, in which innate ability of workers, and the type of their education and jobs determine the rate of technological progress and social mobility. The innate ability and hence productivity level of an individual is private knowledge. Education not only increases productivity level, more so for the higher ability individuals, it also acts as a signaling device for one’s innate productive ability for the purpose of job matching in the labor market. It is shown that in economies with one-time non-renegotiable wage contracts, there are generally multiple signaling equilibria, all being far away from generating the maximum attainable rate of social mobility and economic growth. There are no natural economic grounds that can guide to select a particular equilibrium. Various labor market practices such as quit, layoffs and promotions based on worker’s or employer’s subjective assessment of on-the-job realized productivity, or explicit wage contracts contingent on some publicly observed noisy measurement of realized productivity, can improve some of the inefficiencies, and hence increase the rate of economic growth and social mobility. The remaining inefficiencies, however, can only be removed by intervening in the education system. The paper analyzes briefly a few education systems, and within the dual private-public education system, the paper examines the role of school vouchers or subsidies to the children of poorer family backgrounds in improving the rate of economic growth and social mobility.