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Intergenerational income mobility revisited: Estimation with an income dynamic model with heterogeneous age profile

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  • Chau, Tak Wai

Abstract

The traditional method of estimating intergenerational income elasticity by using the average income over a few years for each generation is subject to attenuation bias due to measurement error and lifecycle bias. In this paper, I estimate the intergenerational elasticity using an income dynamic model with intergenerational linkages. The model can explicitly account for sources of biases such as heterogeneous age profile and transitory shocks of changing variance over the lifecycle. The model can be identified through the covariance structure of earnings within individuals and across generations. Based on the models, I simulate the lifetime income of both generations and calculate the implied intergenerational elasticity.

Suggested Citation

  • Chau, Tak Wai, 2012. "Intergenerational income mobility revisited: Estimation with an income dynamic model with heterogeneous age profile," Economics Letters, Elsevier, vol. 117(3), pages 770-773.
  • Handle: RePEc:eee:ecolet:v:117:y:2012:i:3:p:770-773
    DOI: 10.1016/j.econlet.2012.08.039
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    References listed on IDEAS

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    1. Anders Bohlmark & Matthew J. Lindquist, 2006. "Life-Cycle Variations in the Association between Current and Lifetime Income: Replication and Extension for Sweden," Journal of Labor Economics, University of Chicago Press, vol. 24(4), pages 879-900, October.
    2. 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.
    3. Steven Haider & Gary Solon, 2006. "Life-Cycle Variation in the Association between Current and Lifetime Earnings," American Economic Review, American Economic Association, vol. 96(4), pages 1308-1320, September.
    4. Gary S. Becker & Nigel Tomes, 1994. "Human Capital and the Rise and Fall of Families," NBER Chapters,in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education (3rd Edition), pages 257-298 National Bureau of Economic Research, Inc.
    5. Solon, Gary, 1992. "Intergenerational Income Mobility in the United States," American Economic Review, American Economic Association, vol. 82(3), pages 393-408, June.
    6. Zimmerman, David J, 1992. "Regression toward Mediocrity in Economic Stature," American Economic Review, American Economic Association, vol. 82(3), pages 409-429, June.
    7. Brenner, Jan, 2010. "Life-cycle variations in the association between current and lifetime earnings: Evidence for German natives and guest workers," Labour Economics, Elsevier, vol. 17(2), pages 392-406, April.
    8. Robert A. Moffitt & Peter Gottschalk, 2002. "Trends in the Transitory Variance of Earnings in the United States," Economic Journal, Royal Economic Society, vol. 112(478), pages 68-73, March.
    9. Philipp Eisenhauer & Friedhelm Pfeiffer, 2008. "Assessing Intergenerational Earnings Persistence among German Workers," SOEPpapers on Multidisciplinary Panel Data Research 134, DIW Berlin, The German Socio-Economic Panel (SOEP).
    10. Grawe, Nathan D., 2006. "Lifecycle bias in estimates of intergenerational earnings persistence," Labour Economics, Elsevier, vol. 13(5), pages 551-570, October.
    11. Eisenhauer, Philipp & Pfeiffer, Friedhelm, 2008. "Assessing intergenerational earnings persistence among German workers," Zeitschrift für ArbeitsmarktForschung - Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 41(2/3), pages 119-137.
    12. repec:iab:iabzaf:v:41:i:2/3:p:119-137 is not listed on IDEAS
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    Cited by:

    1. Jantti, Markus & Jenkins, Stephen P., 2013. "Income mobility," ISER Working Paper Series 2013-23, Institute for Social and Economic Research.
    2. Sachverständigenrat zur Begutachtung der Gesamtwirtschaftlichen Entwicklung (ed.), 2013. "Gegen eine rückwärtsgewandte Wirtschaftspolitik. Jahresgutachten 2013/14," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201314, April.

    More about this item

    Keywords

    Intergenerational mobility; Lifecycle bias; Income dynamics; Heterogeneous profile;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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