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

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  • 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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Keywords: errors-in-variables model; life-cycle bias; lifetime income;

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References

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  1. Susan E. Mayer & Leonard Michael Lopoo, 2001. "Has the Intergenerational Transmission of Economic Status Changed?," JCPR Working Papers, Northwestern University/University of Chicago Joint Center for Poverty Research 227, Northwestern University/University of Chicago Joint Center for Poverty Research.
  2. 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.
  3. Baker, Michael, 1997. "Growth-Rate Heterogeneity and the Covariance Structure of Life-Cycle Earnings," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 15(2), pages 338-75, April.
  4. Edin, P.-A. & Fredriksson, P., 2000. "LINDA - Longitudinal INdividual DAta for Sweden," Papers, Uppsala - Working Paper Series 2000:19, Uppsala - Working Paper Series.
  5. Steven Haider & Gary Solon, 2000. "Non Random Selection in the HRS Social Security Earnings Sample," Working Papers, RAND Corporation Publications Department 00-01, RAND Corporation Publications Department.
  6. Steven Haider & Gary Solon, 2006. "Life-Cycle Variation in the Association between Current and Lifetime Earnings," American Economic Review, American Economic Association, American Economic Association, vol. 96(4), pages 1308-1320, September.
  7. 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.
  8. Ramses H. Abul Naga, 1999. "Estimating the Intergenerational Correlation of Incomes: An Errors in Variables Framework," STICERD - Distributional Analysis Research Programme Papers, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE 44, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  9. Laura Chadwick & Gary Solon, 2002. "Intergenerational Income Mobility Among Daughters," American Economic Review, American Economic Association, American Economic Association, vol. 92(1), pages 335-344, March.
  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, London School of Economics and Political Science, vol. 69(273), pages 69-91, February.
  11. Chul-In Lee & Gary Solon, 2009. "Trends in Intergenerational Income Mobility," The Review of Economics and Statistics, MIT Press, vol. 91(4), pages 766-772, November.
  12. Bhashkar Mazumder, 2001. "The mis-measurement of permanent earnings: new evidence from Social Security earnings data," Working Paper Series, Federal Reserve Bank of Chicago WP-01-24, Federal Reserve Bank of Chicago.
  13. Klevmarken, N Anders, 1982. " On the Stability of Age-Earnings Profiles," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 84(4), pages 531-54.
  14. 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, Uppsala University, Department of Economics 2004:11, Uppsala University, Department of Economics.
  15. Yoram Ben-Porath, 1967. "The Production of Human Capital and the Life Cycle of Earnings," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 75, pages 352.
  16. Heckman, James J, 1976. "A Life-Cycle Model of Earnings, Learning, and Consumption," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 84(4), pages S11-44, August.
  17. Grawe, Nathan D., 2006. "Lifecycle bias in estimates of intergenerational earnings persistence," Labour Economics, Elsevier, Elsevier, vol. 13(5), pages 551-570, October.
  18. Solon, Gary, 1999. "Intergenerational mobility in the labor market," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 29, pages 1761-1800 Elsevier.
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  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. 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.
  2. 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, Oslo University, Department of Economics 34/2005, Oslo University, Department of Economics.
  3. Anders Björklund & Mikael Lindahl & Erik Plug, 2006. "The Origins of Intergenerational Associations: Lessons from Swedish Adoption Data," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 121(3), pages 999-1028, 08.
  4. Mårten Palme & Sofia Sandgren, 2008. "Parental Income, Lifetime Income, and Mortality," Journal of the European Economic Association, MIT Press, MIT Press, vol. 6(4), pages 890-911, 06.
  5. Jan Brenner, 2009. "Life-Cycle Variations in the Association between Current and Lifetime Earnings – Evidence for German Natives and Guest Workers," Ruhr Economic Papers, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen 0095, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  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. Böhlmark, Anders, 2008. "Age at immigration and school performance: A siblings analysis using swedish register data," Labour Economics, Elsevier, Elsevier, vol. 15(6), pages 1366-1387, December.
  8. 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, Swedish Institute for Social Research 4/2007, Swedish Institute for Social Research.

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