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The effects of measurement error and omitted variables when using transition matrices to measure intergenerational mobility

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Author Info
Donal O’Neill ()
Olive Sweetman
Dirk Van de gaer

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Abstract

This paper examines the consequences of specification error when transition matrices are used to analyse patterns of intergenerational mobility. We show that classical measurement error in both the child’s and parent’s earnings can lead to biased results, with summary mobility measures biased by as much as 20% in some cases. Furthermore our results suggest that the extent of the bias is most severe in the tails of the distribution. Omitted conditioning variables appear to have a modest effect on transition matrices in our model. Copyright Springer Science+Business Media, Inc. 2007

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File URL: http://hdl.handle.net/10.1007/s10888-006-9035-7
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Publisher Info
Article provided by Springer in its journal The Journal of Economic Inequality.

Volume (Year): 5 (2007)
Issue (Month): 2 (August)
Pages: 159-178
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:kap:jecinq:v:5:y:2007:i:2:p:159-178

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Web page: http://springerlink.metapress.com/link.asp?id=111137

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Related research
Keywords: transition matrices; specification error; intergenerational mobility;

References listed on IDEAS
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  1. Grawe, Nathan D., 2006. "Lifecycle bias in estimates of intergenerational earnings persistence," Labour Economics, Elsevier, vol. 13(5), pages 551-570, October. [Downloadable!] (restricted)
  2. Bound, John & Brown, Charles & Mathiowetz, Nancy, 2001. "Measurement error in survey data," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 5, chapter 59, pages 3705-3843 Elsevier. [Downloadable!] (restricted)
  3. Ramses H. Abul Naga, 1999. "Estimating the Intergenerational Correlation of Incomes: An Errors in Variables Framework," STICERD - Distributional Analysis Research Programme Papers 44, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE. [Downloadable!]
    Other versions:
  4. Nathan D. Grawe & Casey B. Mulligan, 2002. "Economic Interpretations of Intergenerational Correlations," NBER Working Papers 8948, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Richard Breen & Pasi Moisio, 2004. "Poverty dynamics corrected for measurement error," Journal of Economic Inequality, Springer, vol. 2(3), pages 171-191, July. [Downloadable!] (restricted)
  6. Bonggeun Kim & Gary Solon, 2005. "Implications of Mean-Reverting Measurement Error for Longitudinal Studies of Wages and Employment," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 193-196, December. [Downloadable!] (restricted)
  7. Becker, Gary S & Tomes, Nigel, 1986. "Human Capital and the Rise and Fall of Families," Journal of Labor Economics, University of Chicago Press, vol. 4(3), pages S1-39, July. [Downloadable!] (restricted)
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  8. Daniele Checchi & Valentino Dardanoni, 2002. "Mobility comparisons: does using different measures matter?," Departemental Working Papers 2002-15, Department of Economics University of Milan Italy. [Downloadable!]
  9. Solon, Gary, 1992. "Intergenerational Income Mobility in the United States," American Economic Review, American Economic Association, vol. 82(3), pages 393-408, June. [Downloadable!] (restricted)
  10. Thierry Magnac & Michael Visser, 1999. "Transition Models With Measurement Errors," The Review of Economics and Statistics, MIT Press, vol. 81(3), pages 466-474, August. [Downloadable!] (restricted)
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  11. Miles Corak & Andrew Heisz, 1998. "The Intergenerational Earnings and Income Mobility of Canadian," Labor and Demography 9808001, EconWPA. [Downloadable!]
  12. Gary Solon, 2002. "Cross-Country Differences in Intergenerational Earnings Mobility," Journal of Economic Perspectives, American Economic Association, vol. 16(3), pages 59-66, Summer. [Downloadable!] (restricted)
  13. Pischke, Jorn-Steffen, 1995. "Measurement Error and Earnings Dynamics: Some Estimates from the PSID Validation Study," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 305-14, July.
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  14. Steven Haider & Gary Solon, 2006. "Life-Cycle Variation in the Association between Current and Lifetime Earnings," American Economic Review, American Economic Association, vol. 96(4), pages 1308-1320, September. [Downloadable!]
    Other versions:
  15. Solon, Gary, 1999. "Intergenerational mobility in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 29, pages 1761-1800 Elsevier. [Downloadable!] (restricted)
  16. D. O'Neill & Sweetman. O. & Van de gaer D., 2005. "The Consequences of Non-Classical Measurement Error for Distributional Analysis," Economics, Finance and Accounting Department Working Paper Series n1490205, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth. [Downloadable!]
  17. Alexandra L. Minicozzi, 2003. "Estimation of sons' intergenerational earnings mobility in the presence of censoring," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(3), pages 291-314. [Downloadable!]
  18. Bhashkar Mazumder, 2005. "Fortunate Sons: New Estimates of Intergenerational Mobility in the United States Using Social Security Earnings Data," The Review of Economics and Statistics, MIT Press, vol. 87(2), pages 235-255, 07. [Downloadable!] (restricted)
  19. Fields, Gary S. & Ok, Efe A., 1996. "The Measurement of Income Mobility: An Introduction to the Literature," Working Papers 96-05, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
  20. Corak, Miles & Heisz, Andrew, 1996. "The Intergenerational Income Mobility of Canadian Men," Analytical Studies Branch Research Paper Series 1996089e, Statistics Canada, Analytical Studies Branch. [Downloadable!]
  21. Shorrocks, A F, 1978. "The Measurement of Mobility," Econometrica, Econometric Society, vol. 46(5), pages 1013-24, September. [Downloadable!] (restricted)
  22. Dearden, Lorraine & Machin, Stephen & Reed, Howard, 1997. "Intergenerational Mobility in Britain," Economic Journal, Royal Economic Society, vol. 107(440), pages 47-66, January. [Downloadable!] (restricted)
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