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The intergenerational persistence of lifetime earnings

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  • Hendricks, Lutz

Abstract

This paper proposes a new method for estimating the intergenerational persistence of lifetime earnings from data that contain only short sections of individual earnings histories. The approach infers lifetime earnings persistence from the persistence of short earnings averages together with information about the stochastic process governing individual earnings. I find that lifetime earnings are substantially more persistent than previous estimates based on short panel data suggest. About 54% of lifetime earnings differences between fathers persist into their sons' generation. This persistence estimate exceeds previous estimates based on five year earnings averages by one third. These findings are robust against alternative assumptions about the data generating process for earnings.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 51 (2007)
Issue (Month): 1 (January)
Pages: 125-144

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Handle: RePEc:eee:eecrev:v:51:y:2007:i:1:p:125-144

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References

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  1. Huggett, Mark & Ventura, Gustavo, 2000. "Understanding why high income households save more than low income households," Journal of Monetary Economics, Elsevier, vol. 45(2), pages 361-397, April.
  2. Couch, Kenneth A. & Lillard, Dean R., 1998. "Sample selection rules and the intergenerational correlation of earnings," Labour Economics, Elsevier, vol. 5(3), pages 313-329, September.
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  4. Huggett, Mark, 1996. "Wealth distribution in life-cycle economies," Journal of Monetary Economics, Elsevier, vol. 38(3), pages 469-494, December.
  5. Hendricks, Lutz A., 2001. "How Do Taxes Affect Human Capital? The Role of Intergenerational Mobility," Staff General Research Papers 11929, Iowa State University, Department of Economics.
  6. repec:att:wimass:9722 is not listed on IDEAS
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  11. Grawe, Nathan D., 2003. "Life Cycle Bias in the Estimation of Intergenerational Earnings Persistence," Analytical Studies Branch Research Paper Series 2003207e, Statistics Canada, Analytical Studies Branch.
  12. Lutz Hendricks, 2001. "Online Appendix to How Do Taxes Affect Human Capital? The Role of Intergenerational Mobility," Technical Appendices hendricks02, Review of Economic Dynamics.
  13. Peters, H Elizabeth, 1992. "Patterns of Intergenerational Mobility in Income and Earnings," The Review of Economics and Statistics, MIT Press, vol. 74(3), pages 456-66, August.
  14. Solon, Gary, 1992. "Intergenerational Income Mobility in the United States," American Economic Review, American Economic Association, vol. 82(3), pages 393-408, June.
  15. Zimmerman, David J, 1992. "Regression toward Mediocrity in Economic Stature," American Economic Review, American Economic Association, vol. 82(3), pages 409-29, June.
  16. Yona Rubinstein & Daniel Tsiddon, 2004. "Coping with Technological Change: The Role of Ability in Making Inequality so Persistent," Journal of Economic Growth, Springer, vol. 9(3), pages 305-346, 09.
  17. Ana Castaneda & Javier Diaz-Gimenez & Jose-Victor Rios-Rull, 2003. "Accounting for the U.S. Earnings and Wealth Inequality," Journal of Political Economy, University of Chicago Press, vol. 111(4), pages 818-857, August.
  18. Bhashkar Mazumder, 2003. "Revised estimates of intergenerational income mobility in the United States," Working Paper Series WP-03-16, Federal Reserve Bank of Chicago.
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Cited by:
  1. Lutz Hendricks, 2005. "How Important is Discount Rate Heterogeneity for Wealth Inequality?," CESifo Working Paper Series 1604, CESifo Group Munich.

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