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Life-Cycle Variations in the Association between Current and Lifetime Income: Country, Cohort and Gender Comparisons

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Author Info

  • Lindquist, Matthew J.

    ()
    (Swedish Institute for Social Research, Stockholm University)

  • Böhlmark, Anders

    ()
    (Swedish Institute for Social Research, Stockholm University)

Abstract

This study applies Haider and Solon’s (2005) generalized errors-in-variables model to Swedish income tax data in order to produce estimates of the association between current and lifetime income. Our estimates of this association demonstrate strong life-cycle patterns. This implies that the widespread use of current income as a proxy for lifetime income (following the standard errors-in-variables model) leads to inconsistent parameter estimates (a.k.a. life-cycle bias). Estimates for comparable cohorts of Swedish and American men demonstrate surprising similarities. There are, however, significant gender and cohort differences in this association which, in turn, lead to statistically significant and quantitatively meaningful differences in life-cycle biases. The results from this study can aid the applied researcher in analyzing and correcting for life-cycle bias.

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Bibliographic Info

Paper provided by Swedish Institute for Social Research in its series Working Paper Series with number 4/2005.

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Length: 48 pages
Date of creation: 29 Aug 2005
Date of revision:
Handle: RePEc:hhs:sofiwp:2005_004

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Postal: SOFI, Stockholm University, SE-10691 Stockholm, Sweden
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Keywords: errors-in-variables model; life-cycle bias; lifetime income;

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References

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  1. Bhashkar Mazumder, 2001. "The mis-measurement of permanent earnings: new evidence from Social Security earnings data," Working Paper Series WP-01-24, Federal Reserve Bank of Chicago.
  2. Grawe, Nathan D., 2006. "Lifecycle bias in estimates of intergenerational earnings persistence," Labour Economics, Elsevier, vol. 13(5), pages 551-570, October.
  3. Naga, Ramses H Abul, 2002. "Estimating the Intergeneration Correlation of Incomes: An Errors-in-Variables Framework," Economica, London School of Economics and Political Science, vol. 69(273), pages 69-91, February.
  4. Susan E. Mayer & Leonard M. Lopoo, 2005. "Has the Intergenerational Transmission of Economic Status Changed?," Journal of Human Resources, University of Wisconsin Press, vol. 40(1).
  5. Steven Haider & Gary Solon, 2006. "Life-Cycle Variation in the Association between Current and Lifetime Earnings," NBER Working Papers 11943, National Bureau of Economic Research, Inc.
  6. Edin, P.-A. & Fredriksson, P., 2000. "LINDA - Longitudinal INdividual DAta for Sweden," Papers 2000-19, Uppsala - Working Paper Series.
  7. Heckman, James J, 1976. "A Life-Cycle Model of Earnings, Learning, and Consumption," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages S11-44, August.
  8. Baker, Michael, 1997. "Growth-Rate Heterogeneity and the Covariance Structure of Life-Cycle Earnings," Journal of Labor Economics, University of Chicago Press, vol. 15(2), pages 338-75, April.
  9. 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, May.
  10. Yoram Ben-Porath, 1967. "The Production of Human Capital and the Life Cycle of Earnings," Journal of Political Economy, University of Chicago Press, vol. 75, pages 352.
  11. Gustavsson, Magnus, 2004. "Trends in the Transitory Variance of Earnings: Evidence from Sweden 1960-1990 and a Comparison with the United States," Working Paper Series 2004:11, Uppsala University, Department of Economics.
  12. Chul-In Lee & Gary Solon, 2006. "Trends in Intergenerational Income Mobility," NBER Working Papers 12007, National Bureau of Economic Research, Inc.
  13. Klevmarken, N Anders, 1982. " On the Stability of Age-Earnings Profiles," Scandinavian Journal of Economics, Wiley Blackwell, vol. 84(4), pages 531-54.
  14. 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.
  15. Haider, S. & Solon, G., 2000. "Nonrandom Selection in the HRS Social Security Earnings Sample," Papers 00-01, RAND - Labor and Population Program.
  16. Laura Chadwick & Gary Solon, 2002. "Intergenerational Income Mobility Among Daughters," American Economic Review, American Economic Association, vol. 92(1), pages 335-344, March.
  17. Sherwin Rosen & Paul Taubman, 1982. "Changes in Life-Cycle Earnings: What Do Social Security Data Show?," Journal of Human Resources, University of Wisconsin Press, vol. 17(3), pages 321-338.
  18. Ramses H. ABUL NAGA, 1998. "Estimating the Intergenerational Correlation of Incomes : An Errors in Variables Framework," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9812, Université de Lausanne, Faculté des HEC, DEEP.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. What do egalitarians care about?
    by pushmedia1 in The Ambrosini Critique on 2008-05-21 21:18:10
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Cited by:
  1. Björklund, Anders & Lindahl, Mikael & Plug, Erik, 2005. "The Origins of Intergenerational Associations: Lessons from Swedish Adoption Data," IZA Discussion Papers 1739, Institute for the Study of Labor (IZA).
  2. Brenner, Jan, 2010. "Life-cycle variations in the association between current and lifetime earnings: Evidence for German natives and guest workers," Labour Economics, Elsevier, vol. 17(2), pages 392-406, April.
  3. Mårten Palme & Sofia Sandgren, 2008. "Parental Income, Lifetime Income, and Mortality," Journal of the European Economic Association, MIT Press, vol. 6(4), pages 890-911, 06.
  4. Jäntti, Markus & Bratsberg, Bernt & Røed, Knut & Raaum, Oddbjørn & Naylor, Robin & Österbacka, Eva & Björklund, Anders & Eriksson, Tor, 2006. "American Exceptionalism in a New Light: A Comparison of Intergenerational Earnings Mobility in the Nordic Countries, the United Kingdom and the United States," IZA Discussion Papers 1938, Institute for the Study of Labor (IZA).
  5. 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.
  6. Hammarstedt, Mats & Palme, Mårten, 2006. "Intergenerational Mobility, Human Capital Transmission and the Earnings of Second-Generation Immigrants in Sweden," IZA Discussion Papers 1943, Institute for the Study of Labor (IZA).
  7. Björklund, Anders, 2006. "Family Background and Outcomes Later in Life: A (Partial and Personal) Survey of Recent Research Using Swedish Register Data," Working Paper Series 4/2007, Swedish Institute for Social Research.
  8. Böhlmark, Anders, 2005. "Age at Immigration and School Performance: A Siblings Analysis Using Swedish Register Data," Working Paper Series 6/2005, Swedish Institute for Social Research, revised 10 Dec 2007.

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