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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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number
12669.
Length: Date of creation: 26 Aug 2006 Date of revision: Publication status: Forthcoming in European Economic Review. Handle: RePEc:isu:genres:12669
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Find related papers by JEL classification: J6 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies
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