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The effects of measurement error and omitted variables when using transition matrices to measure intergenerational mobility

  • Donal O’Neill

    ()

  • Olive Sweetman
  • Dirk Van de gaer

This paper examines the consequences of specification error when transition matrices are used to analyse patterns of intergenerational mobility. We show that classical measurement error in both the child’s and parent’s earnings can lead to biased results, with summary mobility measures biased by as much as 20% in some cases. Furthermore our results suggest that the extent of the bias is most severe in the tails of the distribution. Omitted conditioning variables appear to have a modest effect on transition matrices in our model. Copyright Springer Science+Business Media, Inc. 2007

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File URL: http://hdl.handle.net/10.1007/s10888-006-9035-7
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Article provided by Springer in its journal The Journal of Economic Inequality.

Volume (Year): 5 (2007)
Issue (Month): 2 (August)
Pages: 159-178

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Handle: RePEc:kap:jecinq:v:5:y:2007:i:2:p:159-178
Contact details of provider: Web page: http://springerlink.metapress.com/link.asp?id=111137

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  17. D. O'Neill & Sweetman. O. & Van de gaer D., 2005. "The Consequences of Non-Classical Measurement Error for Distributional Analysis," Economics, Finance and Accounting Department Working Paper Series n1490205, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  18. Nathan D. Grawe, 2004. "Reconsidering the Use of Nonlinearities in Intergenerational Earnings Mobility as a Test for Credit Constraints," Journal of Human Resources, University of Wisconsin Press, vol. 39(3).
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