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Earnings mobility and measurement error : a pseudo-panel approach

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  • Antman, Francisca
  • McKenzie, David J.

Abstract

The degree of mobility in incomes is often seen as an important measure of the equality of opportunity in a society and of the flexibility and freedom of its labor market. But estimation of mobility using panel data is biased by the presence of measurement error and non-random attrition from the panel. This paper shows that dynamic pseudo-panel methods can be used to consistently estimate measures of absolute and conditional mobility in the presence of non-classical measurement errors. These methods are applied to data on earnings from a Mexican quarterly rotating panel. Absolute mobility in earnings is found to be very low in Mexico, suggesting that the high level of inequality found in the cross-section will persist over time. However, the paper finds conditional mobility to be high, so that households are able to recover quickly from earnings shocks. These findings suggest a role for policies which address underlying inequalities in earnings opportunities.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3745.

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Date of creation: 01 Oct 2005
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Handle: RePEc:wbk:wbrwps:3745

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Keywords: Inequality; Housing&Human Habitats; Roads&Highways; Economic Theory&Research; Rural Poverty Reduction;

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  1. Duncan Thomas & Elizabeth Frankenberg & James P. Smith, 2000. "Lost But Not Forgotten: Attrition and Follow-up in the Indonesian Family Life Survey," Working Papers 00-03, RAND Corporation Publications Department.
  2. Gottschalk, Peter & Spolaore, Enricco, 2002. "On the Evaluation of Economic Mobility," Review of Economic Studies, Wiley Blackwell, vol. 69(1), pages 191-208, January.
  3. Fields, Gary S. & Cichello, Paul & Freije, Samuel & Menéndez, Marta & Newhouse, David, 2003. "For Richer or for Poorer ? Evidence from Indonesia, South Africa, Spain, and Venezuela," Economics Papers from University Paris Dauphine 123456789/1560, Paris Dauphine University.
  4. Jarvis, Sarah & Jenkins, Stephen P, 1998. "How Much Income Mobility Is There in Britain?," Economic Journal, Royal Economic Society, vol. 108(447), pages 428-43, March.
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  6. Antman, Francisca & McKenzie, David J., 2005. "Poverty traps and nonlinear income dynamics with measurement error and individual heterogeneity," Policy Research Working Paper Series 3764, The World Bank.
  7. Moffitt, Robert, 1993. "Identification and estimation of dynamic models with a time series of repeated cross-sections," Journal of Econometrics, Elsevier, vol. 59(1-2), pages 99-123, September.
  8. McKenzie, D.J.David J., 2004. "Asymptotic theory for heterogeneous dynamic pseudo-panels," Journal of Econometrics, Elsevier, vol. 120(2), pages 235-262, June.
  9. Aaberge, Rolf, et al, 2002. "Income Inequality and Income Mobility in the Scandinavian Countries Compared to the United States," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 48(4), pages 443-69, December.
  10. Arellano, M., 1989. "A Note On The Anderson-Hsiao Estimator For Panel Data," Economics Series Working Papers 9975, University of Oxford, Department of Economics.
  11. Bob Baulch & John Hoddinott, 2000. "Economic mobility and poverty dynamics in developing countries," Journal of Development Studies, Taylor & Francis Journals, vol. 36(6), pages 1-24.
  12. Neil McCulloch & Bob Baulch, 2000. "Simulating the Impact of Policy upon Chronic and Transitory Poverty in Rural Pakistan," Econometrics 0004003, EconWPA.
  13. Islam, Nazrul, 1995. "Growth Empirics: A Panel Data Approach," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 1127-70, November.
  14. Peter Gottschalk, 1997. "Inequality, Income Growth, and Mobility: The Basic Facts," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 21-40, Spring.
  15. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  16. Neil McCulloch & Bob Baulch, 2000. "Simulating the impact of policy upon chronic and transitory poverty in rural Pakistan," Journal of Development Studies, Taylor & Francis Journals, vol. 36(6), pages 100-130.
  17. Deaton, Angus, 1985. "Panel data from time series of cross-sections," Journal of Econometrics, Elsevier, vol. 30(1-2), pages 109-126.
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