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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)

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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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Publisher 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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Web page: http://www.sofi.su.se/
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Related research
Keywords: errors-in-variables model; life-cycle bias; lifetime income;

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Find related papers by JEL classification:
C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - General
C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General
C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Klevmarken, N Anders, 1982. " On the Stability of Age-Earnings Profiles," Scandinavian Journal of Economics, Blackwell Publishing, vol. 84(4), pages 531-54.
  2. Edin, Per-Anders & Fredriksson, Peter, 2000. "LINDA - Longitudinal INdividual DAta for Sweden," Working Paper Series 2000:19, Uppsala University, Department of Economics. [Downloadable!]
    Other versions:
  3. Grawe, Nathan D., 2006. "Lifecycle bias in estimates of intergenerational earnings persistence," Labour Economics, Elsevier, vol. 13(5), pages 551-570, October. [Downloadable!] (restricted)
  4. Haider, S. & Solon, G., 2000. "Nonrandom Selection in the HRS Social Security Earnings Sample," Papers 00-01, RAND - Labor and Population Program.
    Other versions:
  5. 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:
  6. 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). [Downloadable!] (restricted)
  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. [Downloadable!] (restricted)
  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. [Downloadable!] (restricted)
  9. Chul-In Lee & Gary Solon, 2006. "Trends in Intergenerational Income Mobility," NBER Working Papers 12007, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. 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. [Downloadable!] (restricted)
  11. 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:
  12. 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)
  13. Laura Chadwick & Gary Solon, 2002. "Intergenerational Income Mobility Among Daughters," American Economic Review, American Economic Association, vol. 92(1), pages 335-344, March. [Downloadable!]
  14. Deaton, A. & Grosh, M., 1998. "Consumption," Papers 191, Princeton, Woodrow Wilson School - Development Studies.
  15. 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. [Downloadable!]
  16. 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. [Downloadable!] (restricted)
  17. 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. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jäntti, Markus & Bratsberg, Bernt & Røed, Knut & Raaum, Oddbjørn & Naylor, Robin & Österbacka, Eva & Bjørklund, Anders & Eriksson, Tor, 2005. "American exceptionalism in a new light: a comparison of intergenerational earnings mobility in the Nordic countries, the United Kingdom and the United States," Memorandum 34/2005, Oslo University, Department of Economics. [Downloadable!]
    Other versions:
  2. 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. [Downloadable!]
  3. Mats Hammarstedt & Mårten Palme, 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). [Downloadable!]
  4. Palme, Mårten & Sandgren, Sofia, 2007. "Parental Income, Lifetime Income and Mortality," Research Papers in Economics 2007:4, Stockholm University, Department of Economics. [Downloadable!]
  5. 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.
  6. 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. [Downloadable!] (restricted)
    Other versions:
  7. Hammarstedt , Mats & Palme, Mårten, 2006. "Intergenerational Mobility, Human Capital Transmission and the Earnings of Second-Generation Immigrants in Sweden," Research Papers in Economics 2006:2, Stockholm University, Department of Economics. [Downloadable!]
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