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Identification of the Covariance Structure of Earnings Using the GMM Estimator

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Author Info

  • Doris, Aedin

    ()
    (National University of Ireland, Maynooth)

  • O'Neill, Donal

    ()
    (National University of Ireland, Maynooth)

  • Sweetman, Olive

    ()
    (National University of Ireland, Maynooth)

Abstract

In this paper we study the performance of the GMM estimator in the context of the covariance structure of earnings. Using analytical and Monte Carlo techniques we examine the sensitivity of parameter identification to key features such as panel length, sample size, the degree of persistence of earnings shocks and the evolution of inequality over time. We show that the interaction of transitory persistence with the time pattern of inequality determines identification in these models and offer some practical recommendations that follow from our findings.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4952.

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Length: 32 pages
Date of creation: May 2010
Date of revision:
Publication status: published in: Journal of Economic Inequality, 2013, 11 (3), 343-372
Handle: RePEc:iza:izadps:dp4952

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Keywords: permanent and transitory inequality; GMM;

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References

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  1. Joseph G. Altonji & Lewis M. Segal, 1994. "Small sample bias in GMM estimation of covariance structures," Working Paper Series, Macroeconomic Issues 94-8, Federal Reserve Bank of Chicago.
  2. Cervini-Plá, María & Ramos, Xavi, 2008. "Long Term Earnings Inequality, Earnings Instability and Temporary Employment in Spain: 1993–2000," IZA Discussion Papers 3538, Institute for the Study of Labor (IZA).
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  7. Todd E. Clark, 1995. "Small sample properties of estimators of non-linear models of covariance structure," Research Working Paper 95-01, Federal Reserve Bank of Kansas City.
  8. Haider, Steven J, 2001. "Earnings Instability and Earnings Inequality of Males in the United States: 1967-1991," Journal of Labor Economics, University of Chicago Press, vol. 19(4), pages 799-836, October.
  9. James H. Stock & Jonathan Wright, 2000. "GMM with Weak Identification," Econometrica, Econometric Society, vol. 68(5), pages 1055-1096, September.
  10. Magnus Gustavsson, 2007. "The 1990s rise in Swedish earnings inequality -- persistent or transitory?," Applied Economics, Taylor & Francis Journals, vol. 39(1), pages 25-30.
  11. Aedin Doris & Donal O’Neill & Olive Sweetman, 2008. "Does Growth Affect the Nature of Inequality? Ireland 1994-2001," Economics, Finance and Accounting Department Working Paper Series n1930708.pdf, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
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Citations

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Cited by:
  1. Cappellari, Lorenzo & Jenkins, Stephen P., 2013. "Earnings and Labour Market Volatility in Britain," IZA Discussion Papers 7491, Institute for the Study of Labor (IZA).
  2. Markus Jantti & Stephen P. Jenkins, 2014. "Income Mobility," Working Papers 319, ECINEQ, Society for the Study of Economic Inequality.
  3. Otto Kässi, 2014. "Earnings dynamics of men and women in Finland: permanent inequality versus earnings instability," Empirical Economics, Springer, vol. 46(2), pages 451-477, March.
  4. repec:ese:iserwp:2013-10 is not listed on IDEAS
  5. SOLOGON Denisa & VAN KERM Philippe, 2014. "Earnings dynamics, foreign workers and the stability of inequality trends in Luxembourg 1988-2009," CEPS/INSTEAD Working Paper Series 2014-03, CEPS/INSTEAD.
  6. repec:ese:iserwp:2013-23 is not listed on IDEAS
  7. Stephen Jenkins & Peter Lambert, 2011. "Robert Moffitt and Peter Gottschalk’s 1995 paper ‘Trends in the covariance structure of earnings in the US: 1969–1987’," Journal of Economic Inequality, Springer, vol. 9(3), pages 433-437, September.

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