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Heterogeneous Income Profiles and Life-Cycle Bias in Intergenerational Mobility Estimation

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Author Info

  • Nybom, Martin

    ()
    (SOFI, Stockholm University)

  • Stuhler, Jan

    ()
    (Universidad Carlos III de Madrid)

Abstract

Research on intergenerational income mobility is based on current income since data on lifetime income are typically not available for two generations. However, using snapshots of income over shorter periods causes a so-called life-cycle bias if the snapshots cannot mimic lifetime outcomes. Using uniquely long series of Swedish income data, we show that current empirical strategies do not eliminate such bias. We focus on the widely adopted generalized errors-in-variables model and find that the remaining bias is substantial (20% of the true elasticity from left-side measurement error at the most relevant age range). IV estimates suffer from even stronger life-cycle effects and do not provide an upper bound. Inconsistencies stem from the interaction of two factors: heterogeneity in income profiles cannot be fully accounted for, and idiosyncratic deviations from average profiles correlate with individual characteristics and family background. We discuss implications of our findings for other literatures that depend on measurement of long-run income and income dynamics.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5697.

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Length: 38 pages
Date of creation: May 2011
Date of revision:
Handle: RePEc:iza:izadps:dp5697

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Keywords: intergenerational mobility; intergenerational income elasticity; life-cycle bias; non-classical measurement error; generalized errors-in-variables model; heterogeneous income profiles;

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References

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Citations

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Cited by:
  1. Nybom, Martin & Stuhler, Jan, 2013. "Interpreting Trends in Intergenerational Income Mobility," IZA Discussion Papers 7514, Institute for the Study of Labor (IZA).
  2. Bingley, Paul & Cappellari, Lorenzo, 2012. "Alike in Many Ways: Intergenerational and Sibling Correlations of Brothers' Earnings," IZA Discussion Papers 6987, Institute for the Study of Labor (IZA).
  3. Markus Jäntti & Stephen P. Jenkins, 2013. "Income Mobility," SOEPpapers on Multidisciplinary Panel Data Research 607, DIW Berlin, The German Socio-Economic Panel (SOEP).
  4. Paul Bingley & Lorenzo Cappellari, 2013. "Correlation of Brothers Earnings and Intergenerational Transmission," DISCE - Working Papers del Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE) def6, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  5. Björklund, Anders & Jäntti, Markus & Nybom, Martin, 2012. "The Role of Parental Income over the Life Cycle: A Comparison of Sweden and the UK," IZA Discussion Papers 7066, Institute for the Study of Labor (IZA).
  6. Nybom, Martin, 2014. "The Distribution of Lifetime Earnings Returns to College," Working Paper Series 2/2014, Swedish Institute for Social Research.
  7. Büchner Charlotte & Cörvers Frank & Traag Tanja & Velden Rolf van der, 2012. "How do Education, Cognitive Skills, Cultural and Social Capital Account for Intergenerational Earnings Persistence? Evidence from the Netherlands," Research Memorandum 028, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  8. Jäntti, Markus & Lindahl, Lena, 2012. "On the variability of income within and across generations," Economics Letters, Elsevier, Elsevier, vol. 117(1), pages 165-167.
  9. Regina Flake, 2011. "Gender Differences in the Intergenerational Earnings Mobility of Second-Generation Migrants," Ruhr Economic Papers, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen 0283, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  10. Nybom, Martin & Stuhler, Jan, 2014. "Interpreting Trends in Intergenerational Mobility," Working Paper Series 3/2014, Swedish Institute for Social Research.
  11. Jantti, Markus & Jenkins, Stephen P., 2013. "Income mobility," ISER Working Paper Series 2013-23, Institute for Social and Economic Research.
  12. Bingley, P. & Lorenzo Cappellari, 2013. "GINI DP 57: Alike in Many Ways: Intergenerational and Sibling Correlations of Brothers’ Life- Cycle Earnings," GINI Discussion Papers 57, AIAS, Amsterdam Institute for Advanced Labour Studies.
  13. Arnaud Lefranc & Fumiaki Ojima & Takashi Yoshida, 2014. "Intergenerational earnings mobility in Japan among sons and daughters: levels and trends," Journal of Population Economics, Springer, Springer, vol. 27(1), pages 91-134, January.
  14. Manudeep Bhuller & Magne Mogstad & Kjell G.Salvanes, 2011. "Life-cycle bias and the returns to schooling in current and lifetime earnings," Discussion Papers, Research Department of Statistics Norway 666, Research Department of Statistics Norway.
  15. Arnaud Lefranc & Fumiaki Ojima & Takashi Yoshida, 2011. "Intergenerational earnings mobility in Japan among sons and daughters : levels and trends," THEMA Working Papers 2011-10, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  16. Hederos Eriksson, Karin & Jäntti, Markus & Lindahl, Lena & Torssander, Jenny, 2014. "Trends in Life Expectancy by Income and the Role of Specific Causes of Death," Working Paper Series 8/2014, Swedish Institute for Social Research.

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