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Life-Cycle Variations in the Association between Current and Lifetime Income: Country, Cohort and Gender Comparisons

  • Lindquist, Matthew J.


    (Swedish Institute for Social Research, Stockholm University)

  • Böhlmark, Anders


    (Swedish Institute for Social Research, Stockholm University)

This study applies Haider and Solon’s (2005) generalized errors-in-variables model to Swedish income tax data in order to produce estimates of the association between current and lifetime income. Our estimates of this association demonstrate strong life-cycle patterns. This implies that the widespread use of current income as a proxy for lifetime income (following the standard errors-in-variables model) leads to inconsistent parameter estimates (a.k.a. life-cycle bias). Estimates for comparable cohorts of Swedish and American men demonstrate surprising similarities. There are, however, significant gender and cohort differences in this association which, in turn, lead to statistically significant and quantitatively meaningful differences in life-cycle biases. The results from this study can aid the applied researcher in analyzing and correcting for life-cycle bias.

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Paper provided by Swedish Institute for Social Research in its series Working Paper Series with number 4/2005.

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Length: 48 pages
Date of creation: 29 Aug 2005
Date of revision:
Handle: RePEc:hhs:sofiwp:2005_004
Contact details of provider: Postal: SOFI, Stockholm University, SE-10691 Stockholm, Sweden
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  1. Susan E. Mayer & Leonard M. Lopoo, 2005. "Has the Intergenerational Transmission of Economic Status Changed?," Journal of Human Resources, University of Wisconsin Press, vol. 40(1).
  2. Laura Chadwick & Gary Solon, 2002. "Intergenerational Income Mobility Among Daughters," American Economic Review, American Economic Association, vol. 92(1), pages 335-344, March.
  3. Klevmarken, N Anders, 1982. " On the Stability of Age-Earnings Profiles," Scandinavian Journal of Economics, Wiley Blackwell, vol. 84(4), pages 531-54.
  4. Ramses H. ABUL NAGA, 1998. "Estimating the Intergenerational Correlation of Incomes : An Errors in Variables Framework," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9812, Université de Lausanne, Faculté des HEC, DEEP.
  5. Steven Haider & Gary Solon, 2006. "Life-Cycle Variation in the Association between Current and Lifetime Earnings," NBER Working Papers 11943, National Bureau of Economic Research, Inc.
  6. Chul-In Lee & Gary Solon, 2006. "Trends in Intergenerational Income Mobility," NBER Working Papers 12007, National Bureau of Economic Research, Inc.
  7. Naga, Ramses H Abul, 2002. "Estimating the Intergeneration Correlation of Incomes: An Errors-in-Variables Framework," Economica, London School of Economics and Political Science, vol. 69(273), pages 69-91, February.
  8. Yoram Ben-Porath, 1967. "The Production of Human Capital and the Life Cycle of Earnings," Journal of Political Economy, University of Chicago Press, vol. 75, pages 352.
  9. Bhashkar Mazumder, 2001. "The mis-measurement of permanent earnings: new evidence from Social Security earnings data," Working Paper Series WP-01-24, Federal Reserve Bank of Chicago.
  10. Solon, Gary, 1999. "Intergenerational mobility in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 29, pages 1761-1800 Elsevier.
  11. Edin, P.-A. & Fredriksson, P., 2000. "LINDA - Longitudinal INdividual DAta for Sweden," Papers 2000:19, Uppsala - Working Paper Series.
  12. Steven Haider & Gary Solon, 2000. "Non Random Selection in the HRS Social Security Earnings Sample," Working Papers 00-01, RAND Corporation Publications Department.
  13. Gustavsson, Magnus, 2004. "Trends in the Transitory Variance of Earnings: Evidence from Sweden 1960-1990 and a Comparison with the United States," Working Paper Series 2004:11, Uppsala University, Department of Economics.
  14. 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.
  15. Grawe, Nathan D., 2006. "Lifecycle bias in estimates of intergenerational earnings persistence," Labour Economics, Elsevier, vol. 13(5), pages 551-570, October.
  16. Baker, Michael, 1997. "Growth-Rate Heterogeneity and the Covariance Structure of Life-Cycle Earnings," Journal of Labor Economics, University of Chicago Press, vol. 15(2), pages 338-75, April.
  17. Sherwin Rosen & Paul Taubman, 1982. "Changes in Life-Cycle Earnings: What Do Social Security Data Show?," Journal of Human Resources, University of Wisconsin Press, vol. 17(3), pages 321-338.
  18. Heckman, James J, 1976. "A Life-Cycle Model of Earnings, Learning, and Consumption," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages S11-44, August.
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