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

Author

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  • Lindquist, Matthew J.

    () (Swedish Institute for Social Research, Stockholm University)

  • Böhlmark, Anders

    () (Swedish Institute for Social Research, Stockholm University)

Abstract

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.

Suggested Citation

  • Lindquist, Matthew J. & Böhlmark, Anders, 2005. "Life-Cycle Variations in the Association between Current and Lifetime Income: Country, Cohort and Gender Comparisons," Working Paper Series 4/2005, Stockholm University, Swedish Institute for Social Research.
  • Handle: RePEc:hhs:sofiwp:2005_004
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    References listed on IDEAS

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    1. 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.
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    5. 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.
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    1. What do egalitarians care about?
      by pushmedia1 in The Ambrosini Critique on 2008-05-22 02:18:10

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    Cited by:

    1. Anders Björklund & Mikael Lindahl & Erik Plug, 2006. "The Origins of Intergenerational Associations: Lessons from Swedish Adoption Data," The Quarterly Journal of Economics, Oxford University Press, vol. 121(3), pages 999-1028.
    2. Jäntti, Markus & Bratsberg, Bernt & Røed, Knut & Raaum, Oddbjørn & Naylor, Robin & Österbacka, Eva & Bjørklund, Anders & Eriksson, Tor, 2005. "American exceptionalism in a new light: a comparison of intergenerational earnings mobility in the Nordic countries, the United Kingdom and the United States," Memorandum 34/2005, Oslo University, Department of Economics.
    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. 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.
    5. Björklund, Anders, 2006. "Family Background and Outcomes Later in Life: A (Partial and Personal) Survey of Recent Research Using Swedish Register Data," Working Paper Series 4/2007, Stockholm University, Swedish Institute for Social Research.
    6. Mats Hammarstedt & Mårten Palme, 2012. "Human capital transmission and the earnings of second-generation immigrants in Sweden," IZA Journal of Migration and Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 1(1), pages 1-23, December.
    7. Mårten Palme & Sofia Sandgren, 2008. "Parental Income, Lifetime Income, and Mortality," Journal of the European Economic Association, MIT Press, vol. 6(4), pages 890-911, June.
    8. Hammarstedt, Mats & Palme, Mårten, 2006. "Intergenerational Mobility, Human Capital Transmission and the Earnings of Second-Generation Immigrants in Sweden," IZA Discussion Papers 1943, Institute for the Study of Labor (IZA).
    9. Böhlmark, Anders, 2008. "Age at immigration and school performance: A siblings analysis using swedish register data," Labour Economics, Elsevier, vol. 15(6), pages 1366-1387, December.
    10. 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.

    More about this item

    Keywords

    errors-in-variables model; life-cycle bias; lifetime income;

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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