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A Practitioner's Approach to Estimating Intertemporal Relationships Using Longitudinal Data: Lessons from Applications in Wage Dynamics

In: Handbook of Econometrics

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  • MaCurdy, Thomas

Abstract

This chapter presents a unified set of estimation methods for fitting a rich array of models describing dynamic relationships within a longitudinal data setting. The discussion surveys approaches for characterizing the micro dynamics of continuous dependent variables both over time and across individuals, focusing on two flexible sets of empirical specifications: dynamic simultaneous equations models incorporating error-components structures, and autoregressive quantile models. The chapter is motivated by the principle that, whenever possible, estimation methods should rely on routines available in familiar software packages to make them accessible to a wide range of practitioners. Conventional method-of-moments procedures offer a general apparatus for estimating parameters of panel-data specifications, though one must introduce a series of modifications to overcome challenges arising from: (1) use of unbalanced data structures, (2) weighting to account for stratified sampling inherent in survey longitudinal data, (3) incorporation of predetermined variables in estimation, and (4) computational complexities confronted when estimating large systems of equations with intricate intertemporal restrictions. To allow researchers to separate the estimation of longitudinal time-series specifications into manageable pieces, the discussion describes multi-step approaches that estimate subsets of parameters appearing in a single model component (such as the autoregressive or moving-average structure of the error process) without having to estimate all parameters of the entire model jointly. Such procedures offer a powerful set of diagnostic tools for narrowing model choices and for selecting among specifications that fit the underlying data. To illustrate all of the econometric methods outlined in this chapter, the analysis presents a set of empirical applications summarizing the dynamic properties of hourly wages for adult men using data from the Panel Study of Income Dynamics.

Suggested Citation

  • MaCurdy, Thomas, 2007. "A Practitioner's Approach to Estimating Intertemporal Relationships Using Longitudinal Data: Lessons from Applications in Wage Dynamics," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 62, Elsevier.
  • Handle: RePEc:eee:ecochp:6a-62
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    Citations

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    Cited by:

    1. Youngmin Park & Youngki Shin & Lance Lochner, 2017. "Earnings Dynamics and Returns to Skills," 2017 Meeting Papers 166, Society for Economic Dynamics.
    2. Flavio Cunha & James J. Heckman, 2007. "The Evolution of Inequality, Heterogeneity and Uncertainty in Labor Earnings in the U.S. Economy," NBER Working Papers 13526, National Bureau of Economic Research, Inc.
    3. Konstantinos Angelopoulos & Spyridon Lazarakis & James Malley, 2019. "Cyclical income risk in Great Britain," Working Papers 2019_03, Business School - Economics, University of Glasgow.
    4. Audra Bowlus & Jean-Marc Robin, 2010. "An International Comparison of Equalization Mobility and Lifetime Earnings Inequality: How Continental Europe Resembles North America," Working Papers hal-03473768, HAL.
    5. de Castro, Luciano & Galvao, Antonio F. & Kaplan, David M. & Liu, Xin, 2019. "Smoothed GMM for quantile models," Journal of Econometrics, Elsevier, vol. 213(1), pages 121-144.
    6. Lance Lochner & Youngmin Park & Youngki Shin, 2017. "Wage Dynamics and Returns to Unobserved Skill," University of Western Ontario, Centre for Human Capital and Productivity (CHCP) Working Papers 201726, University of Western Ontario, Centre for Human Capital and Productivity (CHCP).
    7. Konstantinos Angelopoulos & Spyridon Lazarakis & James Malley, 2019. "Cyclical income risk in Great Britain," Working Papers 2019-03, Business School - Economics, University of Glasgow.
    8. Elin Halvorsen & Thor O. Thoresen, 2021. "Distributional Effects of a Wealth Tax under Lifetime‐Dynastic Income Concepts," Scandinavian Journal of Economics, Wiley Blackwell, vol. 123(1), pages 184-215, January.
    9. Garnero, Andrea & Hijzen, Alexander & Martin, Sébastien, 2019. "More unequal, but more mobile? Earnings inequality and mobility in OECD countries," Labour Economics, Elsevier, vol. 56(C), pages 26-35.
    10. Robert Moffitt & Peter Gottschalk, 2008. "Trends in the Transitory Variance of Male Earnings in the U.S., 1970-2004," Boston College Working Papers in Economics 697, Boston College Department of Economics.
    11. Heckman, James J. & Moon, Seong Hyeok & Pinto, Rodrigo & Savelyev, Peter A. & Yavitz, Adam, 2010. "The rate of return to the HighScope Perry Preschool Program," Journal of Public Economics, Elsevier, vol. 94(1-2), pages 114-128, February.
    12. Giesecke, Matthias & Bönke, Timm & Lüthen, Holger, 2011. "The Dynamics of Earnings in Germany: Evidence from Social Security Records," VfS Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis 48692, Verein für Socialpolitik / German Economic Association.
    13. 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.
    14. Lee, Soohyung & Malin, Benjamin A., 2013. "Education's role in China's structural transformation," Journal of Development Economics, Elsevier, vol. 101(C), pages 148-166.
    15. Audra J. Bowlus & Jean-Marc Robin, 2012. "An International Comparison Of Lifetime Inequality: How Continental Europe Resembles North America," Journal of the European Economic Association, European Economic Association, vol. 10(6), pages 1236-1262, December.
    16. Timothy Erickson & Toni M. Whited, 2012. "Treating Measurement Error in Tobin's q," Review of Financial Studies, Society for Financial Studies, vol. 25(4), pages 1286-1329.
    17. Thomas J. Kniesner & W. Kip Viscusi & Christopher Woock & James P. Ziliak, 2012. "The Value of a Statistical Life: Evidence from Panel Data," The Review of Economics and Statistics, MIT Press, vol. 94(1), pages 74-87, February.
    18. John Pencavel, 2013. "Worker cooperatives and democratic governance," Chapters, in: Anna Grandori (ed.), Handbook of Economic Organization, chapter 24, Edward Elgar Publishing.
    19. Sisi Zhang, 2010. "Recent Trends in Household Income Dynamics for the United States, Germany and Great Britain," Economics Bulletin, AccessEcon, vol. 30(2), pages 1154-1172.
    20. Sheila M W Reddy & Theodore Groves & Sriniketh Nagavarapu, 2014. "Consequences of a Government-Controlled Agricultural Price Increase on Fishing and the Coral Reef Ecosystem in the Republic of Kiribati," PLOS ONE, Public Library of Science, vol. 9(5), pages 1-11, May.
    21. de Castro, Luciano & Galvao, Antonio F. & Kaplan, David M. & Liu, Xin, 2019. "Smoothed GMM for quantile models," Journal of Econometrics, Elsevier, vol. 213(1), pages 121-144.
    22. repec:ial:wpaper:7/2013 is not listed on IDEAS
    23. Audra Bowlus & Jean-Marc Robin, 2010. "An International Comparison of Equalization Mobility and Lifetime Earnings Inequality: How Continental Europe Resembles North America," Sciences Po publications info:hdl:2441/eu4vqp9ompq, Sciences Po.
    24. Moira Daly & Dmytro Hryshko & Iourii Manovskii, 2022. "Improving The Measurement Of Earnings Dynamics," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(1), pages 95-124, February.
    25. Dincecco, Mark & Katz, Gabriel, 2012. "State Capacity and Long-Run Performance," MPRA Paper 38299, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • C39 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Other

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