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A study of the Missing Data Problem for Intergenerational Mobility using Simulations

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Abstract

Applied research on the association between parent and child lifetime income is relying on income data that covers only part of the life cycle which may lead to misleading estimates of the intergenerational elasticity (IGE). In this paper I study the bias of IGE estimates for different missing-data scenarios based on simulated income processes. Using an income process from the income dynamics and risks literature to generate two linked generations’ complete income histories, I use Monte Carlo methods to study the relationship between available data patterns and the bias of the IGE. I find that the traditional approach using the average of the typically available log income observations leads to IGE estimates that are around 40 percent too small. Moreover, I show that the attenuation bias is not reduced by averaging over many father income observations. Using just one income observation for each generation at the optimal age (as discussed in the paper) or using weighted instead of unweighted averages can reduce the bias. In addition, the rank-rank slope is found to be clearly less sensitive to missing data.

Suggested Citation

  • Heidrich, Stefanie, 2016. "A study of the Missing Data Problem for Intergenerational Mobility using Simulations," Umeå Economic Studies 930, Umeå University, Department of Economics.
  • Handle: RePEc:hhs:umnees:0930
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    File URL: http://www.usbe.umu.se/digitalAssets/181/181178_ues930.pdf
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    1. Fatih Guvenen, 2009. "An Empirical Investigation of Labor Income Processes," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(1), pages 58-79, January.
    2. 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.
    3. Martin Nybom & Jan Stuhler, 2016. "Heterogeneous Income Profiles and Lifecycle Bias in Intergenerational Mobility Estimation," Journal of Human Resources, University of Wisconsin Press, vol. 51(1), pages 239-268.
    4. Abel, Jaison R. & Deitz, Richard, 2013. "Do the benefits of college still outweigh the costs?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 20.
    5. Lillard, Lee A & Weiss, Yoram, 1979. "Components of Variation in Panel Earnings Data: American Scientists, 1960-70," Econometrica, Econometric Society, vol. 47(2), pages 437-454, March.
    6. repec:hrv:faseco:30750027 is not listed on IDEAS
    7. Becker, Gary S & Tomes, Nigel, 1979. "An Equilibrium Theory of the Distribution of Income and Intergenerational Mobility," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1153-1189, December.
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    More about this item

    Keywords

    long-term effects of moving; disruption costs; neighborhood effects; human capital; child development;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion

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