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Identification of the Covariance Structure of Earnings Using the GMM Estimator

  • Doris, Aedin


    (National University of Ireland, Maynooth)

  • O'Neill, Donal


    (National University of Ireland, Maynooth)

  • Sweetman, Olive


    (National University of Ireland, Maynooth)

In this paper we study the performance of the GMM estimator in the context of the covariance structure of earnings. Using analytical and Monte Carlo techniques we examine the sensitivity of parameter identification to key features such as panel length, sample size, the degree of persistence of earnings shocks and the evolution of inequality over time. We show that the interaction of transitory persistence with the time pattern of inequality determines identification in these models and offer some practical recommendations that follow from our findings.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4952.

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Length: 32 pages
Date of creation: May 2010
Date of revision:
Publication status: published in: Journal of Economic Inequality, 2013, 11 (3), 343-372
Handle: RePEc:iza:izadps:dp4952
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  1. Cappellari, Lorenzo, 2002. "Earnings dynamics and uncertainty in Italy: how do they differ between the private and public sectors?," Labour Economics, Elsevier, vol. 9(4), pages 477-496, September.
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  10. Michael Baker & Gary Solon, 1998. "Earnings Dynamics and Inequality among Canadian Men, 1976-1992: Evidence from Longitudinal Income Tax Records," Working Papers baker-98-01, University of Toronto, Department of Economics.
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  19. SOLOGON Denisa & O?DONOGHUE Cathal, 2010. "Earnings dynamics and inequality in the EU, 1994-2001," LISER Working Paper Series 2010-34, LISER.
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